Monday’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.

Silver Wheaton Corp. (SLW-N, SLW-T) faces a number of headwinds that will limit the potential for outperformance in the near-term, said BMO Nesbitt Burns analyst Andrew Kaip.

Despite a "strong" growth profile and a recent devaluation of the company's stock, he downgraded his rating to "market perform" from "outperform."

Mr. Kaip said the risk factors facing the company include:

• a protracted timeframe for a resolution of its tax dispute with the Canadian Revenue Agency in which the company’s income tax status is being reassessed;
• Uncertainty about the future development of its stalled Pascua Lama project on the border of Chile and Argentina, which accounts for 13.5 per cent of its project net present value
• A greater exposure to the price of silver, which he noted has underperformed gold recently.

However, he does note an opportunity for Silver Wheaton shares to outperform in relation to the rest of the sector.

"Adjusting for the current and future tax liabilities, shares of SLW are trading at a significant discount to peers," said Mr. Kaip. "It is our view that one of the above -mentioned risk factors will have to abate before shares of SLW can resume their upward trajectory."

Mr. Kaip also lowered the price target for the U.S. issue of the stock to $13 (U.S.) from $20. The analyst consensus price target is $22.15, according to Thomson Reuters.

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Dominion Diamond Corp. (DDC-N; DDC-T) has the potential to create shareholder value going forward through its new focus on being a pure rough diamond producer, according to RBC Dominion Securities analyst Des Kilalea.

However, Mr. Kilalea said the market may not like the company's second-quarter results, which were affected by one-off factors and the building of a "rough" inventory. Pre-announced revenues for the quarter were $210-million, while cost of goods sold was $190-million, beating Mr. Kilalea's estimate by $10-million. That drove gross profit of $20-million, also ahead of his forecast by $10-million.

The company sustained a pre-tax charge of $10-million following the departure of chief executive officer Bob Gannicott and a $2-million hit due to foreign exchange. That led to a loss before interest and taxes of $3-million, compared to Mr. Kilalea's projection of a profit of $17-million.

The company also confirmed it reduced prices by 5 per cent in August due to slow demand, particularly in China.

"The company notes liquidity concerns have lessened as diamantaires are in no hurry to restock, but U.S. retailers are pushing for longer credit terms," the analyst said. "We see rough prices falling further in [the second half of 2015] though a [first quarter of 2016] pick-up is possible as inventories are falling. Dangers include the prospect for further bankruptcies in India, Dubai and China; this will dent confidence to restock."

Adjusting for the price decline and foreign currency, Mr. Kilalea lowered his adjusted earnings per share estimates for 2016, 2017 and 2018 to 20 cents, 49 cents and 54 cents from 50 cents, 70 cents and 81 cents, respectively.

Maintaining his "outperform" rating on "valuation grounds," he lowered his price target for the U.S. issue of the stock to $18 (U.S.) from $21. The analyst consensus is $20.65.

"Dominion Diamonds has room to be part of industry rationalization; this could lead to a greater critical mass of production in a sector where we view the fundamentals as favourable," he said.

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In response to a "soft" first half of 2015, Credit Suisse analyst Omar Sheikh cut his calendar year forecast for U.S. domestic television advertising growth.

Mr. Sheikh now projects a decline of 3.7 per cent for the full year, compared to his previous estimate of 1-per-cent growth. He expects a second-half "recovery" of negative 1.2 per cent, compared to the negative 6 per cent of the first half. He expects ad growth to increase by 10 per cent in 2016, due largely to the Summer Olympics and U.S. presidential election.

"The decline in U.S. domestic advertising in [ the first half of 2015] (negative 6 per cent for the "Big Seven" media companies under our coverage) is being seen by many investors as the start of a new trend," he said. "We disagree and believe TV can maintain its share of total advertising long term. We also highlight that cyclical factors – specifically choppy growth in US corporate profits, may have played a part in the advertising weakness in H1, which could prove transitory. Importantly, we also believe ad trends are likely to get less negative near term (negative 1.2% in the second half), driven by improving linear TV usage, easier ratings comps and strong scatter pricing."

He added:  "We also believe traditional media companies need to deliver some self-help. Four strategies management teams could consider are: (1) restructuring or closing underperforming cable networks; (2) extending the gap between the original broadcast and [subscription video on demand] windows; (3) accelerating direct to consumer distribution; and (4) accelerating the availability of targeted advertising on linear platforms. All would enhance returns and give investors confidence that higher multiples are justified."

Driven  by the changes to his advertising projections, he reduced his price target for major U.S. media companies, including:

Time Warner Inc (TWX-N)  to $100 from $110. Consensus: $94.24.
Viacom Inc (VIAB-Q) to $60 from $85. Consensus: $61.73.
Twenty-First Century Fox Inc (FOXA-Q) to $35 from $40. Consensus: $36.98.
Discovery Communications (DISCA-Q) to $25 from $31. Consensus: $32.35.
Walt Disney Co. (DIS-N)  to $120 from $130. Consensus: $119.11.
CBS Corp (CBS-N) to $75 from $85. Consensus: $63.37.

"We continue to favour owners of the strongest content (sports, movies, original dramas, original comedies) over distributors. TWX and CBS remain our top picks. Both are well positioned even if industry disruption accelerates," said Mr. Sheikh.

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While acknowledging it may make some investors "reluctant," BMO Nesbitt Burns analyst Andrew Kaip said the current valuation of Franco-Nevada Corp. (FNV-T, FNV-N) provides a "competitive edge relative to peers."

He initiated coverage of the stock with an "outperform" rating.

"Investment in FNV benefits from asset diversification with no one royalty/stream exposing the company to increased asset risk," he said. "Further, we believe shares of FNV will continue to benefit from the rotation out of mining equities due to the company's reputation as a "safe-haven" investment in a weak metal price environment.

"Over 2016, we estimate that only 55 per cent of mining precious metals equities under BMO Research's coverage universe will produce positive [free cash flow]."

He set a price target of $70 (Canadian), compared to the analyst consensus of $71.16.

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The reduction in 2015 gold production guidance at its Eleonore facility in Quebec is just a "small bump in the road" for Goldcorp Inc. (GG-N, G-T), said RBC Dominion Securities analyst Stephen Walker.

The company dropped its expectations at Eleonore to 250-270,000 ounces from approximately 290,000 oz. Yet Mr. Walker says, as the production at the mine increases continues, he expects a "significantly improved" second half of the year and for it  to become a low-cost producer within the company's portfolio.

"We expect continued improvement in production and costs at Eleonore during [the second half of 2015] and 2016 as the mine continues to ramp up," said Mr. Walker. "Despite a downgrade of production guidance at Eleonore due to greater-than- expected waste rock dilution in Horizon 4, we expect modifications to get the mine plan back on track. We believe Goldcorp can meet its company-wide 2015 production guidance."

Maintaining his "sector perform" rating for the U.S. issue of the stock, he reduced his price target by a dollar to $18 (U.S.). Consensus is $22.10.

"We expect Goldorp shares to perform in line with its peers and our target multiples are at the low end of Goldcorp's prior trading ranges due to the company's failure to meet its production guidance and new mine start-up schedules/budgets over the last three years," said Mr. Walker. "Multiples could contract further should the company fail to deliver on 2015 guidance or embark on M&A activity that clearly does not create shareholder value."

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In other analyst actions:

BMO initiated coverage of Osisko Gold Royalties (OR-T) with a market perform recommendation and one-year price target of $16.

SunTrust Robinson Humphrey analyst Robert Peck maintained his "buy" rating on Yahoo! Inc (YHOO-Q) and his price target of $40 (U.S.) even after the departure of CMO Kathy Savitt. Mr. Peck said while this suggests pressure on CEO Marissa Mayer is increasing, the stock is already pricing in the worst-case scenario.

Piper Jaffray reiterated its "overweight" rating and $17 (U.S.) price target on J.C. Penney Company Inc (JCP-N) after a proprietary survey showed the company's ranking among women moved up to No.2 from No.4.

Aerovironment Inc (AVAV-Q) was raised to "overweight" from "neutral" at Piper Jaffray by equity analyst Troy Jensen. The 12-month target price is $28 (U.S.) per share.

TerraForm Global Inc (GLBL-Q) was raised to "market outperform" from "market perform" at Avondale Partners by equity analyst Michael Morosi. The 12- month target price is $11 (U.S.) per share.

H&R Block Inc (HRB-N) was downgraded to "neutral" from "buy" at BTIG by equity analyst Mark Palmer.

Marvell Technology Group Ltd (MRVL-Q) was downgraded to "neutral" from "buy" at B. Riley by equity analyst Craig Ellis. The 12-month target price is $10 (U.S.) per share.

Oppenheimer Holdings Inc (OPY US) was raised to "Outperform" from "Neutral" at Macquarie by equity analyst Hugh Miller. The 12-month target price is $27.00 per share.

PFB Corp (PFB-T) was rated new "speculative buy" at Acumen Capital by equity analyst Brian Pow. The 12-month target price is $13 (Canadian) per share.

Premiere Global Services Inc (PGI-N) was downgraded to "outperform" from "strong buy" at Raymond James by equity analyst Tavis Mccourt. The 12-month target price is $14 (U.S.) per share.

Polaris Infrastructure Inc (PIF-T) was rated new "buy" at Salman Partners by equity analyst Nav Malik. The 12-month target price is $13.50 (Canadian) per share.

Solera Holdings Inc (SLH-N) was downgraded to "neutral" from "outperform" at Robert Baird by equity analyst Jeffrey Meuler. The 12-month target price is $56 (Canadian) per share.

Thor Industries Inc (THO-N) was rated new "buy" at Gabelli & Co. by equity analyst Matthew Paige.

Tembec Inc (TMB-T) was raised to "hold" from "reduce" at TD Securities by equity analyst Sean Steuart. The 12-month target price is $1.25 (Canadian) per share.

Tweed Marijuana Inc (TWD-X) was rated new "buy" at Dundee by equity analyst Aaron Salz. The target price is C$2.60 per share.

Winnebago Industries Inc (WGO-N) was rated new "hold" at Gabelli & Co. by equity analyst Matthew Paige.

Woodward Inc (WWD-Q) was rated new "market perform" at Cowen by equity analyst Gautam Khanna. The 12-month target price is $48 (U.S.) per share.