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.
During the current period of weak metal prices, BMO Nesbitt Burns analyst Andrew Kaip expects Agnico Eagle Mines Ltd. (AEM-N, AEM-T) to deliver "superior" share price performance in comparison to its peers.
Mr. Kaip raised his rating for the gold producer to "outperform" from "market perform."
The analyst pointed to four factors in justifying the change: "further cost relief" through a weaker Canadian dollar; ongoing exploration success at its Amaruq (Nunavut) and El Barqueno (Mexico) mines; the defensive nature of the company's operation, which he said was "underpinned" by the highest reserve grade among senior gold peers; and "a strong reputation build on a record of execution."
Mr. Kaip raised his target price for the U.S. issue of the stock to $36 (U.S.) from $30. The analyst consensus target price, according to Thompson Reuters, is $33.72.
"The valuation premium commanded by AEM shares is warranted, in our view, and will likely remain elevated as investors continue to seek lower-risk investment opportunities in the context of a volatile price environment," he said.
Following the release of its guidance for 2016 through 2018 and an investor day, Raymond James analyst Phil Russo said he does not share the view of Yamana Gold Inc. (AUY-N, YRI-T) that it can generate cash flow to support its capital and financial commitments as well as generate a cash surplus this year.
Mr. Russo downgraded the stock to "market perform" from "outperform."
"We prefer, at this time, to wait to see these intentions sustainably demonstrated," he said. "That said, we see significant asset value within Yamana's portfolio that provides us confidence that as its financial concerns are addressed, the company's fundamentals will gain traction. 2015 was a largely successful execution year for the company and we believe Yamana is well-positioned to continue that momentum in 2016. Those risk-tolerant investors searching for near-term torque and/or severely discounted names for the long-term should consider positions in Yamana."
Mr. Russo said he projects for the end of 2016 an unchanged net debt to EBITDA position for the company from today, while Yamana expects "financial metrics to begin to show relief."
"In our view, supporting currently scheduled debt repayments, dividends and capital plans, as well as [generating] surplus cash, will be challenging for the company in an $1,100/ounce gold price environment," the analyst said. "At $1,100, and assuming no further asset sales, metrics begin to show relief as Cerro Moro comes on line in 2018. Further asset sales in 2016 is one avenue that could have a meaningful impact on our projections."
Suggesting risk-tolerant investors should consider the stock, Mr. Russo lowered his price target to $3.75 (U.S.) from $4.50 and said he's moving "to the sidlines for now until cash flows are demonstrated." The analyst consensus target is $3.51.
"Yamana offers the most compelling leverage to the gold price in our universe, which combined with its severely discounted NAV, also presents an attractive entry point for long-term investors," he said. "Given the volatility foreseeable for now, we are more comfortable shifting to the sidelines until Yamana can demonstrate its stated capacity to organically de-lever. Additionally, the execution of further asset divestures of the calibre of the Sandstorm deal would be viewed favourably."
In a research note on the Canadian lifecos sector ahead of the release of fourth-quarter earnings, Credit Suisse analyst Kevin Choquette said he expects "solid" results.
However, he said the first quarter of 2016 "looks weak" given the recent turbulence in the equity markets, which he noted impacts assets under management (AUM) growth, fund flows and margins.
Mr. Choquette reduced his target price for the sector's stocks by 7 per cent based on "lower earnings estimates, lower equity market valuation and China geopolitical risk." He also downgraded his rating for Industrial Alliance Insurance and Financial Services Inc. (IAG-T) to "underperform" from "neutral" based on its higher leverage to equity markets and its lack of foreign exchange support.
"The macro environment was mixed this quarter with U.S. equity markets and interest rates up and Canadian equities and rates down," said Mr. Choquette, who is forecasting core EPS growth of 25 per cent year over year in the fourth quarter and a decline of 1 per cent from the third quarter. "We expect reported EPS to come in below core EPS reflecting investment writedowns at MFC, unfavourable markets/rates at SLF and reserve strengthening at IAG, with the company guiding to a $100-million after-tax charge or 98 cents per share."
He reduced his target price for Industrial Alliance to $45 from $47. Consensus is $47.40.
His other target changes were:
- Great-West Lifeco. Inc. (GWO-T, neutral) to $38 from $39. Consensus: $37.45.
- Manulife Financial Corp. (MFC-T, outperform) to $24 from $28. Consensus: $25.94.
- Sun Life Financial Inc. (SLF-T, outperform) to $48 from $52. Consensus: $48.93.
Following on the heels of first-quarter 2016 results which were in line with expectations, BMO Nesbitt Burns analyst Tim Casey upgraded his rating for Sirius XM Canada Holdings Inc. (XSR-T) to "market perform" from "underperform" based on share price declines.
"Operating metrics were mixed, with mixed subscriber additions, average revenue per user (ARPU) slightly below expectations, and subscriber acquisition costs (SAC) slightly above expectations," he said. "Self-pay churn improved to 1.93 per cent (versus 2.33 per cent last year) as the company retained more subscribers owing to improved retention performance. We forecast mid-single-digit EBITDA growth through 2017."
Mr. Casey did lower his target price for the stock to $4.25 from $5.50. The analyst consensus is $5.17.
"We downgraded XSR to underperform in October 2014," said Mr. Casey. "Since then, the shares have declined roughly 50 per cent. During that period, forward-looking EV/EBITDA multiples have contracted by about 40 per cent, to 8x. Our cash flow forecast is unchanged (following first quarter results) and we continue to have longer-term concerns regarding technology-driven substitution to the core business. However, given the share price declines and revaluation of core metrics, we no longer feel comfortable maintaining an underperform and are upgrading our rating."
Kelt Exploration Inc. (KEL-T) will be "a prime beneficiary of the current commodity rout," said BMO Nesbitt Burns analyst Ray Kwan.
He initiated coverage of the stock with an "outperform" rating.
"The jolt to the shares should come either through inexpensive tuck-in acquisitions or profiting from the decade-low prices for Crown land," said Mr. Kwan. "Kelt's reputation has been to grow profitable through the drill-bit, while continuing to add to its future inventory of drilling locations via step-out exploration and development."
The analyst said he is forecasting 2016 and 2017 production of 20,796 barrels of oil equivalent per day and 20,226 boe/d, based on spending of $80-million and $100-million, respectively. His cash flow per share projections are 35 cents and 54 cents, respectively.
"We think all eyes will be focused on the progress of its Inga Montney program in NEBC, as well as the recently announced Montney play in the Progress area of Alberta," he said. "While early days, we reckon the results of the company's slickwater multi-stage completion program at Inga is moving in the right direction, with post-slickwater rates achieving a 2-3-times multiplier versus existing horizontal wells. At Progress, we think the potential of Kelt's 24 net sections of land is certainly intriguing. According to management, the closest analog is the Gordondale Montney pool, which is currently producing at 20-22mboe/d and achieves among the most prolific Lower Montney wells results in Alberta and B.C."
He set a price target of $5. Consensus is $7.21.
In other analyst actions:
Athabasca Minerals Inc (ABM-X) was downgraded to "neutral" from "buy" at Dundee by equity analyst Maxim Sytchev. The target price is 85 cents (Canadian) per share.
Allegion PLC (ALLE-N) was raised to "outperform" from "inline" at Imperial Capital by equity analyst Jeffrey Kessler. The 12-month target price is $68 (U.S.) per share.
Bird Construction Inc (BDT-T) was raised to "buy" from "neutral" at Dundee by equity analyst Maxim Sytchev. The target price is $15 (Canadian) per share.
Brookfield Renewable Energy Partners LP (BEP.UN-T) was raised to "buy" from "hold" at Industrial Alliance by equity analyst Jeremy Rosenfield. The 12-month target price is $30 (Canadian) per share.
Choice Hotels International Inc (CHH-N) was downgraded to "sell" from "neutral" at MKM Partners by equity analyst Christopher Agnew. The 12-month target price is $40 (U.S.) per share.
Cenovus Energy Inc (CVE-T) was downgraded to "market perform" from "buy" at Cormark Securities by equity analyst Amir Arif. The target price is $18 (Canadian) per share.
Encana Corp (ECA-T) was downgraded to "market perform" from "buy" at Cormark Securities by equity analyst Amir Arif. The target price is $9 (Canadian) per share.
GoPro Inc (GPRO-Q) was downgraded to "equal-weight" from "overweight" at Barclays by equity analyst Joseph Wolf. The target price is $12 (U.S.) per share.
Gear Energy Ltd (GXE-X) was downgraded to "speculative buy" from "buy" at Cormark Securities by equity analyst Garett Ursu. The target price is 55 cents (Canadian) per share.
Hyatt Hotels Corp (H-N) was downgraded to "sell" from "neutral" at MKM Partners by equity analyst Christopher Agnew. The 12-month target price is $37 (U.S.) per share.
Halogen Software Inc (HGN-T) was rated new "buy" at Industrial Alliance by equity analyst Blair Abernethy. The 12-month target price is $13 (Canadian) per share.
Marriott International Inc (MAR-Q) was downgraded to "neutral" from "buy" at MKM Partners by equity analyst Christopher Agnew. The 12-month target price is $61 (U.S.) per share.
Marquee Energy Ltd (MQL-X) was downgraded to "speculative buy" from "buy" at Cormark Securities by equity analyst Garett Ursu. The target price is 45 cents (Canadian) per share.
Sierra Wireless Inc (SW-T) was raised to "buy" from "hold" at Paradigm Capital by equity analyst Daniel Kim. The 12-month target price is $25 (Canadian) per share.
Trican Well Service Ltd (TCW-T) was downgraded to "sell" from "neutral" at PI Financial by equity analyst Brian Purdy. The 12-month target price is $1 (Canadian) per share.
Trilogy Energy Corp (TET-T) was downgraded to "market perform" from "buy" at Cormark Securities by equity analyst Amir Arif. The target price is $4.50 (Canadian) per share.
With files from Bloomberg News
Editor's note: In an earlier version of this article, it stated BMO initiated coverage of Kelt with an "underperform" rating. It was, in fact, an "outperform" rating. This version has been corrected.