Friday’s analyst upgrades and downgrades

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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.

CIBC World Markets analyst Tom Meyer updated his third-quarter commodity prices and reduced his near-term price outlook on copper, lead, nickel, zinc, met coal and molybdenum.

"Ongoing weakness in the commodity complex continues to weigh on valuations," he said. "Unending U.S. dollar strength and concerns about slowing global growth have been impediments to improving the near-term outlook and sentiment for the sector. Valuations continue to slide lower, with the bulk of our coverage universe trading at or close to their 52-week lows. We look to supply cuts over the coming weeks to support spot prices.

"Commodity prices in the third quarter of 2015 traded lower versus the second quarter, with copper down 13 per cent, nickel down 19 per cent, molybdenum down 23 per cent, zinc down 16 per cent, lead down 11 per cent, and cobalt down 2 per cent. Uranium traded lower by 1 per cent and gold and silver prices both decreased by 6 per cent and 9 per cent, respectively."

Among Mr. Meyer's changes were:

- Lowering his copper outlook for the fourth quarter and 2016 to $2.45 (U.S.) and $2.75 per pound from $2.90 and $3, respectively

- Reducing his long-term met coal outlook by 7 per cent to $140 (U.S.) per tonne from $150. He now expects met coal to average $100/t in 2016 from $110 and $130/t in 2017 and 2018 from $150.

With the changes, he upgraded his rating of Teck Resources Ltd. (TCK.B-T;TCK.A-T;TCK-N) to "sector outperformer" from "sector performer" based on relative valuation.

"A value story has developed for Teck shares," said Mr. Meyer. "We estimate approximately half of Teck's [net asset value] is comprised of its met coal business and as such we believe the shares have suffered because of the high met coal exposure. Canadian dollar weakness has helped offset the decline but the fourth quarter 2015 met coal settlement of $89 (U.S.) per tonne may continue to weigh on earnings and sentiment in the near term. We believe this is priced into the shares. The value argument for Teck is strong but an improving met coal outlook is critical for very strong share price outperformance. In the meantime, there is still hope for zinc prices to rebound in the fourth quarter and into early 2016 as aging mines close. Teck's zinc business is approximately 26 per cent of our NAV estimate."

He did reduce his price target for Teck stock to $16 (Canadian) from $22. Consensus is $13.02.

He also dropped his price targets for the following stocks (with his ratings for each as noted):

- Copper Mountain Mining Corp. (CUM-T) to $1.10 from $1.50. Sector outperformer. Consensus: $1.65.

- First Quantum Minerals Ltd. (FM-T) to $19 from $26. Sector outperformer. Consensus: $15.06.

- HudBay Minerals Inc. (HBM-T;HBM-N) to $10 from $12. Sector performer. Consensus: $11.78.

- Lundin Mining Corp. (LUN-T) to $4.50 from $5.50. Sector underperformer. Consensus: $7.02.

- Sherritt International Corp. (S-T) to $2.25 from $4. Sector outperformer. Consensus: $3.41.

- Taseko Mines Ltd. (TKO-T) to 90 cents from $1.50. Sector performer. Consensus: $1.53.

- Thompson Creek Metals Company Inc. (TCM-T;C-N) to $1.50 from $3. Sector performer. Consensus: $2.

- Northern Dynasty Minerals Ltd. (NDM-T;NAK-A) to $1.25 from $1.50. Sector performer. Consensus:$1.03.

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The decision by Penn West Petroleum Ltd. (PWT-T;PWE-N) to sell its 9.5-per-cent stake in its Weyburn unit for $205-million is "another positive step" for the company in a period of low commodity prices, said BMO Nesbitt Burns analyst Gordon Tait.

Following the sale of its portion of the conventional oilfield in southern Saskatchewan, the company said it has now raised $810-million from asset sales. As of the end of June, it had long-term debt of $2.21-billion and $89-million in cash.

"We believe that Penn West's disposition program will help focus the company's operations and reduce debt levels," Mr. Tait said.

It updated its annual production guidance to 84,000-88,000 barrels of oil equivalent per day from 86,000-90,000 boe/d. Its 2015 estimated capital budget remains unchanged at $500-million.

"Management noted that Penn West will continue to market and sell its non-core assets with the goal of reducing indebtedness and improving the quality of the company's balance sheet," said Mr. Tait. "We believe that the company has significant inventory in its Cardium and Viking oil plays that should help offset foregone production from non-core asset sales."

The analyst lowered his 2015 and 2016 production estimates to 86,000 boe/d and 78,500 boe/d, respectively, to account for the sale. He maintained his estimated cash flow per share of 63 cents for 2016, but he dropped his 2016 estimate by four cents to 80 cents.

Maintaining his "underperform" rating for the stock, he lowered his target price to $1.10 (Canadian) from $1.25 "given the company's relatively high debt levels." The average analyst target price, according to Bloomberg, is 95 cents.

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The optics are "negative" on the announcement from National Bank of Canada (NA-T) of a $300-million share offering, said Credit Suisse analyst Kevin Choquette,

On Thursday, the bank also announced it expects to take a fourth-quarter restructuring charge of $85-million, or 19 cents per share related, to severance, premises and professional fees. It also disclosed its 24.9-per-cent ownership stake in Maple Bank Group Inc., which is being investigated for tax irregularities by German regulators.

Mr. Choquette reduced his 2016 and 2017 earnings per share estimates to $4.90 and $5.15 from $5 and $5.25, respectively. He also lowered his target price for shares to $50 from $54 to "reflect the equity issue and higher earnings risk and potential of Maple write down." The consensus average is $49.14.

He maintained a "neutral" rating.

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Possessing a more sustainable growth plan, Just Energy Group Inc. (JE-T;JE-N) is on its way to re-establishing investor goodwill, said CIBC World Markets analyst Kevin Chiang.

"The company has gone through a significant transformation over the past couple of years having reduced its debt levels, increased dividend sustainability and pursuing a capex light growth strategy," the analyst said. "While there remains some overhang as the company proves out its growth plans and addresses the debentures coming starting in 2017, Just Energy has made great strides thus far in executing on its plan."

Mr. Chiang said he's taken a favourable view of the company's focus on its energy marketing business as it transitions into a full energy management solutions provider, emphasizing lower capital spending and improving is margin profile. He sees the company leveraging its consumer bases and distribution network to cross-sell products and increase customer margins without taking on significant capital risk.

"Just Energy was keen to emphasize its transition from being a dividend-focused company to more of a growth-oriented story," said Mr. Chiang after a meeting with company executives. "Management continues to highlight that it will maintain its dividend at current levels (50 cents per share), with a key covenant of its renewed credit facility stipulating that the dividend may not exceed 50 cents per share. And with M&A not taking priority, Just Energy remains committed to utilizing its excess cash to grow organically and deleverage the balance sheet.

"Overall, we are constructive on Just Energy's growth plans with the company offering a compelling dividend. In the past, the company seemed overly focused on its dividend, arguably to the detriment of the underlying business."

Maintaining his "sector performer" rating, he raised his price target to $8.50 (Canadian) from $7.50. Consensus is $6.75.

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In the wake of a "spike" in capitalization rates for Canadian seniors' housing, Canaccord Genuity analyst Neil Maruoka said the recent share price growth for Sienna Senior Living Inc. (SIA-T) is due to the fact that about 23 per cent of its net operating income is derived from retirement residences.

"We view this business as a key potential driver of growth that warrants a premium valuation," he said. "Relative to its  [long-term care] operations, retirement residences are subject to lower regulation and greater payer flexibility."

Mr. Maruoka said the company's capital renewal presents both opportunities and challenges. He said:  "Although the capital renewal plan is still in its early stages, we believe the plan will provide an opportunity to optimize Sienna's preferred accommodation mix; however, it also creates some uncertainty around execution and future capital requirements. Management plans to submit two projects for approval in the fall of this year that, if successful, could see ground broken in 2016. However, at this stage, details are limited as the projects are still in the due diligence phase."

Maintaining his "hold" rating, he raised his price target to $17.25 (Canadian) from $15.50. Consensus is $16.06.

"We forecast Sienna to have a payout ratio of [less than] 70 per cent for 2015 and believe the company has a stable LTC business that is expected to generate [greater than] 70 per cent of total NOI during the year," he said. "We believe that the LTC segment alone provides sufficient cash flow to support the divided at its current level."

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In other analyst actions:

Astoria Financial Corp (AF-N) was downgraded to "hold" from "buy" at Sandler O'Neill by equity analyst Mark Fitzgibbon. The 12-month target price is $16.50 (U.S.) per share.

Ag Growth International Inc (AFN-T) was downgraded to "market perform" from "buy" at Cormark Securities by equity analyst Marc Robinson. The 12-month target price is $40 (Canadian) per share.

BlackRock Inc (BLK-N) was raised to "buy" from "neutral" at UBS by equity analyst Brennan Hawken. The 12-month target price is $350 (U.S.) per share.

Boulder Energy Ltd (BXO-T) was rated new "outperform" at RBC Capital by equity analyst Shailender Randhawa. The 12-month target price is $10 (Canadian) per share.

First National Financial Corp (FN-T) was downgraded to "sector perform" from "outperform" at National Bank by equity analyst Shubha Khan. The 12-month target price is $21 (Canadian) per share.

LPL Financial Holdings Inc (LPLA-Q) was downgraded to "sell" from "neutral" at UBS by equity analyst Alex Kramm. The 12-month target price is $36 (U.S.) per share.

Northern Trust Corp (NTRS-Q) was raised to "neutral" from "sell" at UBS by equity analyst Brennan Hawken. The 12-month target price is $70 (U.S.) per share.

Rogers Corp (ROG-N) was rated new "neutral" at B. Riley by equity analyst Juan Molta. The 12-month target price is $60 (U.S.) per share.

Teck Resources Ltd (TCK.B-T) was raised to "sector outperform" from "sector perform" at CIBC by equity analyst Tom Meyer. The target price is $16 (Canadian) per share.

T Rowe Price Group Inc (TROW-Q) was downgraded to "neutral" from "buy" at UBS by equity analyst Brennan Hawken. The 12-month target price is $68 (U.S.) per share.

With files from Bloomberg