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.
Though he said Rogers Communications Inc. (RCI.B-T;RCI-N) reported "good" third-quarter results, it's current valuation caused Desjardins Securities analyst Maher Yaghi to downgrade the stock.
Noting his previous rating was based on a cheap valuation and the expected recovery of the company's operating strength in the second half of 2015, both of which he said are "now more priced in," Mr. Yaghi moved his rating to "hold" from "buy."
For the quarter, Rogers reported consolidated revenue of $3.38-billion, beating both the analyst's forecast of $3.28-billion and the consensus of $3.32-billion. Revenue growth improved for the sixth consecutive quarter and jumped 4.1 per cent year over year. Adjusted earnings per share of 91 cents also topped Mr. Yaghi's 81-cent projection and the consensus of 83 cents, which he attributed to higher earnings before interest, taxes, depreciation and amortization as well as lower taxes and interest costs.
"Rogers delivered strong performance in its wireless business, signalling its malaise over the last two years is likely in the rear-view mirror," he said. "Wireless churn has now stabilized and the product offering is differentiated enough that it does not require an extreme promotional pricing effort to win customers.
"Another unappreciated fact is the company's low capex [capital expenditures] requirement to offer gigabyte Internet speed to its customer base. We believe this advantage will be more noticeable longer-term in improved [return on invested capital] rather than in short-term subscriber metrics."
He added: "Rogers is generating strong free cash flows, which give it the ability to execute significant network investments to improve its product offering and increase its dividend over time. Rogers' performance has been consistent with our view that management's strategy to rely on product innovation should help reinvigorate its wireless and cable business and be able to more effectively retain its customer base. The company is maintaining price rationality and has shown it is willing to let go of low-margin customers to maintain profitability. Subscriber improvement continues in wireless and opportunity to capture higher value Internet customers should lead to increased financial profitability in the future -- a potential precursor to improved shareholder returns."
Mr. Yaghi raised his target price for the stock to $54 (Canadian) from $51. The average analyst target price, according to Bloomberg, is $52.19.
"Over the short term, however, we believe the shares have moved from trading at a discount to peers to now trading in line with BCE and TELUS," he said. "It is possible the stock price could move beyond our target in the short term as more investors finally get back into owning the shares after they spent a long time in the penalty box; however, we believe it is prudent to take some profits at these levels as the road to full recovery is not a straight path and as potential total return has shrunk to only 7 per cent."
Meanwhile, BMO Nesbitt Burns analyst Tim Casey upgraded the stock to "outperform" from "market perform" and raised his target to $53 from $46, citing is operating results and relative valuation.
Mr. Casey said: "We have consistently stated the issues at Rogers were fixable, but that they required time and money. After encouraging signs last quarter, this result confirms that Rogers is ahead of our expectations on the turnaround of key metrics, notably in wireless, with a blow-out result on subscribers (their best result since 2011) while maintaining stable churn and [average revenue per user]. We have increased our earnings model slightly to reflect the quarterly result. We will revisit our estimates once the peer group has reported third quarter results. It is worth noting our revised estimates still assume that Rogers trails the peer group in subscriber additions. Based on the quarter, we have much higher confidence in our projections."
RBC Capital analyst Drew McReynolds also raised his rating for Rogers to "outperform" from "sector perform" and bumped his target to $54 from $47.
Calling stock of TransCanada Corp. (TRP-T;TRP-N) his "best idea in pipeline/midstream," BMO Nesbitt Burns analyst Ben Pham initiated coverage of the company with an "outperform" rating.
"TRP is one of the largest energy infrastructure companies in North America whose $12-billion of commercially secured projects under construction is supporting a visible 8 to 10-per-cent dividend growth profile through 2017," said Mr. Pham. "Further, as [approximately] $34-billion of contracted opportunity cross key development milestones over the coming years, TRP's growth guidance could be significantly enhanced or extended in our view.
"Despite these attractive near-term growth characteristics and quality management, the shares still trade at a substantial discount to pipeline and energy infrastructure peers. We believe that the cumulative effect of permitting and timing issues on several large pipeline projects (Energy East, Keystone XL, B.C. LNG) have led to uncertainty regarding TRP's longer-term free cash flow and dividend growth potential."
Mr. Pham said he does not model large-scale projections into his valuation of the company, viewing them as longer-dated free options. Accordingly, he said the stock current offers an "attractive" risk/reward proposition at this point, "particularly given dialed back investor expectations."
Touting "the potential for dividend growth upside and attractive asset quality," he set a price target of $56 (Canadian). Consensus is $58.01.
The third-quarter results for Amazon.com Inc (AMZN-Q) "exceeded expectations soundly," said Canaccord Genuity analyst Michael Graham.
"We think it was particularly impressive that every revenue growth line accelerated this quarter (except Amazon Web Services, which still grew 78 per cent)," he said. "[Consolidated segment operating income] margin also came in at $1-billion (4 per cent), over 50 per cent better than the highend of guidance. This was due to smaller loses internationally and a new margin highpoint for AWS. Management's tone remained about the same on 'cost reductions and efficiency.' However, it was also noted that the investment cycle is ongoing, implying that it may be possible to post low-single digit margins while investing in fulfillment centers, international markets, digital content, and last mile delivery.
Mr. Graham was impressed that global revenue growth "re-accelerated" with it rising 23 per cent year over year (up from 20 per cent in the last quarter).
He said: "What was incrementally positive was that each segment and region contributed to the acceleration (except AWS, which still grew an impressive 78 per cent). Even with persisting currency headwinds, international revenue was strong."
He noted valuation is almost the sole negative for the stock, adding: "While our rating has been wrong, with the stock set to open at almost 35 times our 2018 EPS estimate, we are looking for a more attractive entry point from which to capitalize on the positive trends at Amazon."
Maintaining his "hold" rating for the stock, he raised his price target to $600 (U.S.) from $525. The average is $711.63.
Despite a "solid" financial performance in the fourth-quarter, Euro Pacific analyst Rob Goff said he is maintaining a "cautious position" on Shaw Communications Inc. (SJR.B-T).
"Fourth quarter 2015 performance reflects solid financial management and unfortunately an intensely competitive environment where Shaw's ability to respond with strength rather than just through price cutting or promotions awaits its successful launch of next generation video (X1 platform, RDK) and broadband services (1 Gig)," said Mr. Goff. "We expect the successful launch of these services will act as a deterrent to similar moves by its competitor once Shaw's product suite is strengthened. While Shaw's video and broadband service strength will be significantly enhanced, TELUS will continue to have the ability to use mobile wireless as a differentiated bundling element.
"We feel investors will await evidence of positive traction from the new services and increased certainty on the media group before the shares are appropriately rewarded. We are optimistic that Shaw will be able to use its extensive Wi-Fi network for a running start when it looks to offer wireless service."
On Thursday, Shaw reported revenue and EBITDA of $1.34-billion and $573-million, respectively, compared to the consensus of $1.35-billion and $569-million. Earnings per share of 57 cents topped Mr. Goff's estimate of 38 cents.
"Subscriber momentum incurred a set-back due to aggressive promotions during the start of the quarter," the analyst said. "While subscriber trending improved within the quarter and the new service roadmap supports a better outlook."
Leaving his "hold" rating unchanged, he dropped his price target for the stock to $28 (Canadian) from $30 to reflect a reduction in his discounted cash flow projection. The analyst average is $28.38.
"While discounted against historic relative valuation parameters, the re-alignment reflects a more mature growth profile in both absolute and relative terms. Looking ahead, we see mid single-digit annual returns more in line with [free cash flow] growth plus dividend yield," he said. "Looking across its peers, we see stronger growth profiles from TELUS, Rogers, and Quebecor through their wireless exposure and at Cogeco through its business services. We feel the current share price fairly reflects our current financial projections. Shaw's momentum in business and indicated growing interest in business services represent positive growth initiatives."
Struggling to see how American Electric Power Company Inc. (AEP-N) can continue to outperform its peers, Credit Suisse analyst Dan Eggers downgraded his rating for the stock to "neutral" from "outperform."
"We like what AEP is doing strategically whether it be improving earned [return on equities], increasing investment in transmission, or moving out of nonregulated businesses (like barges already and generation eventually)," said Mr. Eggers. "However, we don't like that consensus estimates are still too high (which we flagged last quarter) by $0.06 in 2016, $0.09 in 2017, and $0.13 in 2018."
Mr. Eggers pointed to the uncertainty about the future of the company's coal-fired power plants in Ohio, which are under scrutiny due to a contentious power purchase plan proposed by AEP.
"The Ohio generation PPA remains the focal point where admittedly none of us knows how the discussion resolves," he said. "The structure of a PPA – if one materializes – will obviously impact what AEP does next: it plans to provide a decision in the first quarter of 2016, which then raises the questions around the process to sell and at what price considering the depressed values reflected in the IPP stock prices."
He lowered his price target to $62 (U.S.) from $67. Consensus is $61.93.
In other analyst actions:
Apple Inc (AAPL-Q) was raised to "buy" from "hold" at Maxim Group by equity analyst Nehal Chokshi. The 12-month target price is $167 (U.S.) per share.
athenahealth Inc (ATHN-Q) was raised to "outperform" from "market perform" at Raymond James by equity analyst Nicholas Jansen. The 12-month target price is $160 (U.S.) per share.
B/E Aerospace Inc (BEAV-Q) was downgraded to "sector perform" from "outperform" at RBC Capital by equity analyst Robert Stallard. The 12-month target price is $47 (U.S.) per share.
Cabela's Inc (CAB-N) was downgraded to "market perform" from "outperform" at Wells Fargo by equity analyst Matthew Nemer. It was downgraded to "market perform" from "outperform" at Raymond James by equity analyst Daniel Wewer. It was also downgraded to "fairly valued" from "buy" at CRT Capital by equity analyst Lee Giordano with a 12-month target price of $36 per share.
FireEye Inc (FEYE-Q) was downgraded to "neutral" from "outperform" at Wedbush by equity analyst Steven Koenig. The 12-month target price is $32 (U.S.) per share.
GreenSpace Brands Inc (JTR-T) was rated new "buy" at Beacon Secs by equity analyst Michael Mills. The 12-month target price is $1.60 (Canadian) per share.
KLX Inc (KLXI-Q) was downgraded to "underperform" from "sector perform" at RBC Capital by equity analyst Robert Stallard. The 12-month target price is $36 (U.S.) per share.
Kimberly-Clark Corp (KMB-N) was raised to "buy" from "hold" at Societe Generale by equity analyst Iain Simpson. The 12-month target price is $135 (U.S.) per share.
Mead Johnson Nutrition Co (MJN-N) was downgraded to "neutral" from "outperform" at Credit Suisse by equity analyst Robert Moskow. The target price is $86 (U.S.) per share.
Nasdaq Inc (NDAQ-Q) was downgraded to "market perform" from "outperform" at Wells Fargo by equity analyst Christopher Harris.
NETGEAR Inc (NTGR-Q) was raised to "outperform" from "underperform" at Raymond James by equity analyst Tavis Mccourt. The 12-month target price is $39 (U.S.) per share.
Pandora Media Inc (P-N) was downgraded to "neutral" from "buy" at MKM Partners by equity analyst Rob Sanderson. The 12-month target price is $14 (U.S.) per share. It was downgraded to "sector perform" from "outperform" at RBC Capital by equity analyst Mark Mahaney with a 12-month target price of $20 per share.
Perseus Mining Ltd (PRU-T) was downgraded to "neutral" from "outperform" at Macquarie by equity analyst Ron Stewart. The 12-month target price is 38 cents (Canadian) per share.
Teck Resources Ltd (TCK-N) was raised to "buy" from "hold" at BB&T Capital by equity analyst Garrett Nelson. The 12-month target price is $10 (U.S.) per share.
Under Armour Inc (UA-N) was downgraded to "hold" from "buy" at BB&T Capital by equity analyst Corinna Freedman.
USG Corp (USG-N) was downgraded to "hold" from "buy" at Jefferies by equity analyst Philip Ng. The 12-month target price is $27 (U.S.) per share.
With files from Bloomberg News