Westjet aircraft are pictured at the gates at Toronto Pearson Airport on May 26 2016.Fred Lum/The Globe and Mail
Inside the Market's roundup of some of today's key analyst actions
On Friday, Gran Tierra Energy Inc. (GTE-T) announced an agreement to acquire PetroLatina Energy Ltd. for $525-million (U.S.). Mackie Research Capital Corp. analyst Bill Newman views the move as a good one for the energy company.
"We believe the acquisition of PetroLatina is congruent with management's strategy of completing accretive acquisitions to diversify the company's production and reserves base within Colombia. PetroLatina provides substantial reserves and production upside through the development of the Acordionero oil field as well as a large synergetic land base," Mr. Newman wrote in a note.
"With the acquisitions of PetroLatina, GTE adds substantial reserves with the potential for material production growth within a new core area in the Middle Mag basin. Although post transaction, we estimate GTE will have a significant amount of debt (about $260-million U.S.), capital expenditures can be fully funded with free cash flow generated from its large production base. The acquisition is accretive on a reserve, production and net asset value basis," he wrote.
"Our risked NAV [net asset value] increases to $5.61 [per fully diluted] share from $5.26."
As a result, the analyst maintained his "buy" recommendation on the stock and increased his target price to $5.60 from $5.25, "equivalent to a 1.0-times multiple of our new risked NAV/fd share." The consensus price target is $6.30, according to Thomson Reuters.
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MAG Silver Corp. (MAG-T) and its 44-per-cent owned Juanicipio project is "without doubt, the best undeveloped silver asset globally."
"Our thesis for MAG is reinforced, quite simply, by the exploration upside offered at Juanicipio and elsewhere (Cinco de Mayo) and a lack of broader high-quality silver-focused investible opportunities" said Raymond James analyst Chris Thompson.
"MAG offers investors multiple avenues to value accretion, unlocked by the current bullish sentiment surrounding precious metals (silver in particular), a near-term (2018/19E) production opportunity, and significant exploration upside," he wrote in a note. "We see MAG's current market valuation applying little recognition for what the company can offer through its 44-per-cent ownership in a world-class low-cost silver mine, operated by the best operator in the sector (Fresnillo), in the context of peer valuations. We see this valuation discrepancy adjusting as development transitions to production, with exploration results continuing to reinforce the quality of MAG's asset portfolio."
Raymond James is resuming coverage of MAG Silver with an "outperform" rating and $22.50 target. The consensus is $18.59.
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WestJet Airlines Ltd. (WJA-T) stock has been range-bound since it reported its first-quarter fiscal 2016 results, but Monday's strong second-quarter "load factors and improved RASM [revenue per available seat mile] guidance are very positive for the stock and should lead to a higher share price," said Beacon Securities Ltd. analyst George Trapkov.
As a result, he is upgrading WestJet to "buy" from "hold" and is increasing his target price to $25 from $22. The consensus is $22.03.
"WestJet expects Q2/FY16 RASM to decrease 5.5-6 per cent year-over-year compared to its previous estimate of 7.5-9.5-per-cent decline. The main driver of the better than expected RASM was the improvement in the load factor. We were expecting peak RASM declines to occur in the second half of 2106," he wrote in a note.
"The company reported a record June load factor of 80.4 per cent and second quarter load factor of 80.8 per cent. The strong quarterly load factor was up 270 bps year-over-year on RPMs growth of 12.3 per cent."
For the second quarter, the analyst expects "revenues of $950-million and earnings per share of 24 cents. WestJet will report its second-quarter results on July 26."
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Newfield Exploration Co. (NFX-N) "remains one of our top ideas for the second half of 2016 given its impactful near-term catalysts providing multiple avenues to [net asset value] accretion," said RBC Capital Markets analyst Kyle Rhodes.
With solid Anadarko well results showing up in its bottom line, the company recently "increased its second quarter 2016 total production guidance 4 per cent to 15.2 MMBoe [thousand barrels of oil equivalent] on strong SCOOP/STACK well performance (Anadarko Basin 2Q16 at 83+ MBoepd) and offshore China production, which has yet to roll over."
"NFX also increased full year 2016 production guidance 3 per cent to 56-58 MMBoe, which does not include associated production from recently closed CHK acquisition (1.0+ MMBoe). We believe NFX remains on a comfortable trajectory to topping this pro-forma full year 2016 guidance of 57-59 MMBoe."
As a result, he boosted his one-year price target on the stock to $48 (U.S.) from $45 and kept his "outperform" rating on the company. The consensus estimate is $46.70, according to Thomson Reuters.
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Twitter Inc. (TWTR-N) slipped after analysts at two firms downgraded the stock, citing a lack of confidence in the company's direction and ability to capitalize on new products.
"What is Twitter? Quite frankly, we don't believe that question has been answered," said James Cakmak, an analyst at Monness, Crespi, Hardt & Co. in a note. "Barring any changes, Twitter was, is and will continue as a niche product." He downgraded the stock to the equivalent of "hold" from "buy."
Robert Peck, an analyst at SunTrust Robinson Humphrey also lowered his rating on the stock to the equivalent of "hold" from "buy." "User growth and engagement for Twitter continue to be challenged, and we believe that increasing monetization can only go so far with limited new product introductions increasing competition [such as Snapchat] and a challenging advertising background," Mr. Peck said in a note.
Twitter has been struggling to broaden its appeal beyond journalists, politicians and celebrities using the site for self-promotion. It's betting heavily on live-streaming as a way to make its platform a go-to place to react to and discuss current events. An agreement to broadcast National Football League games had higher-than-expected demand for advertising, spurring Twitter to seek more such deals. On Monday, the company announced an agreement with CBS News to live-stream the Republican National Convention from Cleveland next week and the Democratic National Convention in Philadelphia the week after.
Still, Twitter faces a formidable competitor in Facebook Inc. which is also making a big push into live video.
The stock was flat at $18.08 (U.S.) after falling more than 2.5 per cent in earlier trading. The one-year price target consensus is $18.38. The shares have declined about 50 per cent over the past year, valuing the company at about $12.7-billion. Many analysts see the company as an inevitable takeover target some day, though not anytime soon.
"It's surely an upside risk to our new rating, but at this time we expect Twitter will have to navigate as a standalone company," Mr. Cakmak said.
Bloomberg News
In other analyst actions:
Canaccord Genuity affirms Twitter (TWTR-N) at Buy with a price target of $20 (U.S.) amid cautious commentary on user growth.
CIBC upgraded Sandstorm Gold Ltd. (SAND-N) from Sector Perform to Sector Outperform.
BMO Capital downgraded Monster Worldwide (MWW-N) from Outperform to Market Perform.
Bernstein upgraded ADP (ADP-Q) from Market Perform to Outperform, and said concerns about competition are overdone.