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Labrador Iron Ore Royalty Income Fund

Inside the Market's roundup of some of today's key analyst actions. This file will be updated often during the trading day so check back for new details.

Following a new disclosure by Rio Tinto for the Iron Ore Company of Canada operations and a new lower forecast for a break-even iron ore price, Canaccord Genuity analyst Gary Lampard upgraded Labrador Iron Ore Royalty Corp. (LIF-T) to "buy" from "hold."

The company holds a 15.1-per-cent equity stake in IOC.

"Our key modelling conclusion from the new disclosures is that, assuming a [Canadian dollar/U.S. dollar] spot exchange rate of 0.75 as per current spot, IOC would probably remain cash-flow positive for [the second half of 2015] at an average iron ore price  …  of about $44 (U.S.)/ tonne (compared to our previous estimate of $50/t) and for [the 2016 fiscal year] at an average iron ore price of about $48 (U.S.)/tonne (compared to our previous estimate of $52/t)," said Mr. Lampard.

"On the assumption that IOC would at least for some time continue production (thus supporting LIF's 7-per-cent royalty payments) at iron ore prices slightly below that required to maintain positive cashflow, we believe that LIF's royalty payments are protected down to about $40 (U.S.)/tonne (from our previous estimate of $45/t), well below our view of a short-term sustainable iron ore price, and lower than the year-to-date low of $45/ tonne."

Based on higher production and lower costs projections, Mr. Lampard increased his 2016 earnings per share and earnings before interest, taxes, depreciation and amortization forecasts by 23 per cent to 94 cents and $116.3-million from 76 cents and $94.4-million, respectively. He also said the possibility of a dividend increase above the annual rate of $1 per share is a possibility, projecting a 2016 distribution of $1.25.

Mr. Lampard also raised his 12-month price target for the stock to $18 (Canadian) from $18. The analyst consensus is $16.36, according to Thomson Reuters.


Believing shares of Louisiana-Pacific Corp. (LPX-N) have been discounted by "an overly conservative outlook," RBC Dominion Securities analyst Paul Quinn believes current market conditions could support a price rally.

He upgraded the stock of the building product manufacturer to "outperform" from "sector perform," believing share prices "appear to have bottomed out."

Mr. Quinn noted that the prices of North Central Oriented Strand Board have increased by 10 to 16 per cent since the end of July, and he expects that "positive price momentum" to continue through the rest of the 2015 and 2016 calendar year.

"OSB prices fell to cash cost levels earlier this year; however, we believe the market is tightening, which should support a continued price rally in the medium to long term," he said. "We estimate that a $10 increase in NC OSB prices would increase LP's EBITDA by $45-million. At the same time, the steep decline in the loonie has led to lower costs for the company's Canadian operations. The company previously stated that a 1 cent decline in the Canadian dollar contributes $2-million in EBITDA."

Suggesting the supply/demand outlook is "improving," he said U.S. housing data points to a rally in share prices.

"OSB equities have historically had a very strong relationship with U.S. housing starts … The pace of recovery picked up steam in [the second quarter], with starts averaging 1.155 million, up 18 per cent quarter over year," said Mr. Quinn. "We now expect starts to total 1.15 million in 2015 (a 15-per-cent increase year over year), 1.30 million in 2016 (13 per cent), and 1.45 million in 2017 (12 per cent)."

He added: "Significant employment gains, easing and affordable credit, and low new home inventory levels all point to an accelerating U.S. housing recovery. Last month's release of July's starts at 1.206 million … and the upwardly revised June starts at 1.204 million, confirmed our bullish thesis."

The analyst also raised his price target for the stock to $19 (U.S.) from $16. Consensus is $17.15.

"We believe LP shares (along with other OSB names) are being unfairly discounted due to an overly conservative pricing and U.S. housing market outlook," he said.


Though Dollarama Inc. (DOL-T) is battling a currency headwind and increased competition, those obstacles are "more than offset" by the opportunity for increased efficiency and a new target store footprint, said Raymond James analyst Kenric Tyghe.

Ahead of the release of the company's second-quarter 2016 earnings on Sept. 10, Mr. Tyghe projects same-store growth of 5.1 per cent, driven by average price growth of 3.5 per cent (on an improved mix of products) and a 1.6-per-cent increase in traffic (in the face of weak consumer confidence).

"Our positive Dollarama thesis is predicated on improving operating leverage resulting from the ramp of its substantial infrastructure and systems investments more than offsetting the foreign exchange-driven investments in the customer value proposition, increased [selling, general and administrative expense] leverage (we remain of the opinion that sales, general and administrative guidance remains conservative), and the increased probability of the introduction of a new (higher) price point (or points)," said Mr. Tyghe. "In addition, the further deterioration in both the macro backdrop and consumer confidence further underpin our positive bias on Dollarama."

Keeping his earnings per share estimate for 2016 at $2.66, he raised his 2017 projection by three cents to $3.13. His third-quarter 2016 projection is 63 cents, compared to a consensus of a cent less.

Mr. Tyghe maintained his "outperform" rating for the stock while raising his target price to $88 (Canadian) from $78. The analyst consensus is $79.50.

Following an executive shakeup that saw the departure of chief operating officer Bryan Schmode and senior vice-president of global operations Collis Heath on Wednesday, BMO Nesbitt Burns analyst Thanos Moschopoulos trimmed his price target for shares of Avigilon Corp. (AVO-T).

"We understand the reasons for the departures and believe that the new reporting structure might well prove to be a longer term positive for the company," he said. "However, we think that investor concerns related to execution risk, as well as to Avigilon's ability to recruit and retain senior talent, are likely to weigh on the stock's multiple in the near/medium-term."

Mr. Moschopoulos expects chief executive officer Alex Fernandes to "take a more hands-on role in managing functional areas such as sales, marketing and operations, now that some of the company's prior strategic priorities … have been addressed."

Maintaining a "market perform" rating, he lowered his price target to $17 (Canadian) from $20. The average analyst target, according to Bloomberg, is $22.78.

"We view the stock's valuation as attractive relative to its growth rate, but would like better confidence with respect to our 2016 [fiscal year] forecasts given that there have been several consecutive quarters of negative EPS estimate revisions," he said.


Raymond James analyst David Sadowski said he urges investors to build position in Fission Uranium Corp. (FCU-T) on "significant share price weakness."

He upgraded his rating for the stock to "outperform" from "market perform" citing a number of factors, including Denison Mines Corp.'s proposal to acquire Fission in an all-share deal, potential enhancements to the its flagship Pattern Lake South project, growth at Denison's Gryphon zone of the Wheeler River property and a bullish uranium outlook.

Mr. Sadowski said his valuation of Fission is tied to the pending Denison deal, which is schedule to close in September.

"The share prices of Fission and Denison are down sharply since the transaction was announced (19 per cent and 27 per cent, respectively) due to a wide variety of factors, including amongst others, broader mining equity weakness (for example the S&P/TSX Capped Diversified Metals & Mining Index is down 33 per cent over the same period), and weaker market sentiment towards uranium industry equities."

"We see the selloff in Fission (and Denison) as overdone. As we have stated in the past, we believe the combined, pro-forma entity, Denison Energy, will be the premier global uranium junior with three of the best assets anywhere in the world."

He maintained a target price of $1.30 for the stock. Consensus is $1.84.


In other analyst actions:

Cascades Inc (CAS-T) was downgraded to "sector perform" from "outperform" at RBC Capital by equity analyst Paul Quinn. The 12-month target price is $9 (Canadian) per share.

Caterpillar Inc (CAT-N) was downgraded to "neutral" from "outperform" at Robert Baird by equity analyst Mircea Dobre. The 12-month target price is $77 (U.S.) per share.

Chorus Aviation Inc (CHR.B-T) was raised to "buy" from "hold" at TD Securities by equity analyst Timothy James. The 12-month target price is $6.50 (Canadian) per share.

NetSuite Inc (N-N) was downgraded to "underperform" from "market perform" at Raymond James by equity analyst Terry Tillman.

Oban Mining Corp (OBM-T) was rated new "buy" at M Partners by equity analyst Derek Macpherson. The 12-month target price is $3 (Canadian) per share.

Public Storage (PSA-N) was raised to "outperform" from "market perform" at Raymond James by equity analyst Jonathan Hughes. The 12-month target price is $220 (U.S.) per share.

Citi upgraded Campbell Soup (CPB-N) to "neutral" from "sell" after they reported solid results. RBC Capital maintained its "sector perform" rating on the stock.

Bank of America/Merrill Lynch upgraded Dollar Tree Inc. (DLTR-Q) to "buy" from "neutral."

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