Cargojet airplanes on the tarmac in Hamilton, Ont.Glenn Lowson/The Globe and Mail
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.
RBC Capital Markets has downgraded Long Run Exploration Ltd. (LRE-T) as it expects production to shrink in 2016 and that the company's financial flexibility is constrained.
"Based on our revised 2016 price outlook ($57 U.S. per barrel WTI) and assuming a $120-million cash flow budget, we project Long Run's production to decline by 10 per cent year over year. We project corporate netbacks to fall by 22 per cent year over year, mainly due to lower realized hedging gains ...Our estimates reflect a 27 per cent corporate decline rate and $21,000 capital efficiency metric for new production adds, which is broadly in-line with our 2015 estimate," said analyst Shailender Randhawa.
In addition, Long Run faces a $145-million term loan repayment in mid-2016. That should be covered by its $200-million private placement with MIE Holdings Corp. at $1.30 per share. "However, MIE's commitment is subject to both regulator approvals and financing, the latter of which is a question mark in our minds given the challenging environment," the analyst said.
The analyst downgraded the stock to "underperform" from "sector perform" and reduced its 12-month price target to 30 cents from 90 cents. " Our 12-month price target reflects Long Run's tight financial position, and closing risk associated with its $200 million private placement equity financing," the analyst said.
GMP also downgraded the stock to "reduce" from "hold" with a target price of 35 cents (Canadian) per share.
The consensus is 62 cents, according to Thomson Reuters.
======
Morgan Stanley upgraded Lululemon Athletica (LULU-Q) to "overweight" from "equalweight" as it looks like the company's margins could improve in 2016.
"Our analysis suggests LULU could deliver an EBIT [earnings before interest and taxes] margin inflection in 2016, supporting a return to 20 per cent EPS [earnings per share] growth. Our 2016 forecast is predicated on a modest but achievable +100 bps [basis points] GM improvement coupled with +MSD comps," said Ms. Greenberger.
"With the stock down 5 per cent year to date and down 30 per cent over the past three years, double-digit EPS growth in 2016 should allow LULU to return to outperformance, supporting our upgrade to 'overweight.' We see a compelling entry point and attractive risk/reward, but acknowledge our call could prove early given still elevated inventory levels (total +59 per cent in the second quarter of 2015)," the analyst said.
Morgan Stanley kept its price target of $68 (U.S.). The consensus is $64.27.
======
Credit Suisse is upgrading Yamana Gold Inc. (AUY-N;YRI-T) as it sees potential for a turnaround at the gold miner.
The upgrade is based "on valuation, gold leverage and potential for a turn-around: Rationale: (i) we believe gold will be supported by seasonal strength this fall and tailwinds from a more dovish Fed; (ii) Yamana has high leverage to the gold price on margin leverage and capital structure; (iii) cost tailwinds from BRL, CLP and CAD devaluation; (iv) growth/exploration - Yamana has a good history of replacing reserves; (v) we believe Yamana has attractive assets within its portfolio (El Penon, Malartic and Canadian exploration assets) which could be monetized or sought after; and (vi) a number of our key risks could be turned around," said Credit Suisse.
Those key risks include its net debt to market cap ratio and its limited cash balance, as well as higher expenses, and the depletion of some assets.
"Potential catalysts to turn around the key risks includes Yamana's planned monetization of Brio and Agua Rica. In our view Yamana could look to monetize additional assets. Further cost reduction efforts to reduce G&A/overhead. Exploration spending focused on El Penon in 2015 (34 per cent of budget)."
It raised its 2015, 2016, 2017 EPS estimates to a loss of 5 cents, a profit of 1 cents and 8 cents from losses of 9, 3, and 0 cents respectively.
Credit Suisse upgraded Yamana to "outperform" from "neutral" but reduced its target price to $2.25 (U.S.) from $3.75. The consensus is $3.98.
======
Gluskin Sheff + Associates Inc. (GS-T) reported fiscal fourth quarter base earnings before interest, taxes, depreciation and amortization (EBITDA) "that was lower than forecast, but the company announced a larger-than-expected dividend increase. Base EBITDA of $13.4-million was up 8 per cent on a sequential basis, but was lower than our estimate of $14.3-million," said CIBC analyst Paul Holden.
"The company increased its regular dividend by 11 per cent to $1 per share annually versus our assumption for a 5 per cent increase."
Due to challenging markets CIBC is lowering its performance fee estimate for the period ending December due to market performance, down to $30-million from $58-million.
CIBC kept its "sector outperform" rating on the stock but lowered its price target to $28.50 from $29 as it reduced its base EBITDA estimates. The consensus is $29.25.
======
Desjardins Capital Markets is wary of natural food maker SunOpta Inc.'s (SOY-T;STKL-Q) purchase of Sunrise Holdings, saying it may be overpaying for the business.
"Paine Capital, the current owner, acquired Sunrise in March 2013 from Sun Capital, and with subsequent tuck-in acquisitions, has invested [about] $225-million (U.S.). Paine is selling to SunOpta for $443.8-million, representing 15 times adjusted TTM EBITDA," analyst Keith Howlett said.
"We remain skeptical that IQF fruit is a high-value-added business capable of generating SunOpta management's target EBIT margin of 11 to 13 per cent for the Consumer Products segment. Sunrise's TTM EBIT margin is 7.4 per cent and has been declining in recent quarters. Two large customers represent 42 per cent of sales. Margins may not expand easily. Post-transaction, SunOpta Foods' net debt to TTM adjusted EBITDA will be 6.0 times.
Mr. Howlett kept his "hold" rating but reduced his target price to $8 (U.S) from $9.50. The analyst consensus is $12.80.
======
In other analyst actions:
Allstate Corp. (ALL US) was raised to "Buy" from "Hold" at Sandler O'Neill. The 12-month target price is $66 (U.S.) per share.
Atmel Corp. (ATML US) was downgraded to "Hold" from "Buy" at Topeka Capital. The 12-month target price is $10 (U.S.) per share. The stock was also downgraded to "Market Perform" from "Outperform" at FBR Capital Markets with a target price of $10.50 per share. The stock was also downgraded to "Hold" from "Buy" at Craig-Hallum with a target price of $10.42 per share.
Boston Properties Inc. (BXP US) was downgraded to "Neutral" from "Buy" at Mizuho Securities USA. The target price is $128 (U.S.) per share.
Cameron International Corp. (CAM US) was downgraded to "Sector Perform" from "Outperform" at IBERIA Capital Partners. The target price is $67 (U.S.) per share.
Cargojet Inc. (CJT CN) was rated new "Buy" at Beacon Securities. The 12-month target price is $27 (Canadian) per share.
Callon Petroleum Co. (CPE US) was rated new "Sector Perform" at RBC Capital. The 12-month target price is $9 (U.S.) per share.
Goldman Sachs Group Inc. (GS US) was raised to "Outperform" from "Market Perform" at Oppenheimer. The 12-month target price is $236 (U.S.) per share.
Helix Energy Solutions Group Inc. (HLX US) was rated new "Market Perform" at Cowen. The 12-month target price is $7 (U.S.) per share.
Helmerich & Payne Inc. (HP US) was downgraded to "Sector Perform" from "Outperform" at IBERIA Capital Partners. The target price is $60 (U.S.) per share.
Innergex Renewable Energy Inc. (INE CN) was rated new "Buy" at Industrial Alliance. The target price is $14 (Canadian) per share.
IPG Photonics Corp. (IPGP US) was rated new "Buy" at DA Davidson. The 12-month target price is $110 (U.S.) per share.
LTC Properties Inc. (LTC US) was raised to "Buy" from "Neutral" at Mizuho Securities USA. The target price is $47 (U.S.) per share.
MB Financial Inc (MBFI US) was rated new "Market Perform" at Hovde Group. The 12-month target price is $34.50 (U.S.) per share.
Melco Crown Entertainment Ltd. (MPEL US) was downgraded to "Underperform" from "Neutral" at Macquarie. The 12-month target price is $14 (U.S.) per share.
Potash Corp of Saskatchewan Inc. (POT US) was downgraded to "Underperform" from "Neutral" at Macquarie. The 12-month target price is $22 (U.S.) per share.
PrairieSky Royalty Ltd. (PSK CN) was raised to "Buy" from "Hold" at GMP. The target price is $29.50 (Canadian) per share.
Rocky Brands Inc. (RCKY US) was downgraded to "Neutral" from "Buy" at B. Riley. The 12-month target price is $19 (U.S.)per share.
Rice Energy Inc. (RICE US) was rated new "Buy" at Jefferies. The 12-month target price is $25 (U.S.) per share.
SanDisk Corp (SNDK US) was rated new "Equal-weight" at Barclays. The target price is $60 (U.S.) per share.
Sonic Corp. (SONC US) was raised to "Buy" from "Neutral" at Longbow Research. The 12-month target price is $34 (U.S.) per share.
South State Corp. (SSB US) was rated new "Neutral" at Piper Jaffray. The 12-month target price is $82 (U.S.) per share.
TECSYS Inc. (TCS CN) was rated new "Buy" at Euro Pacific Canada. The 12-month target price is $11 (Canadian) per share.
Tribune Publishing Co. (TPUB US) was downgraded to "Underperform" from "Neutral" at Macquarie. The 12-month target price is $8 (U.S.) per share.
Intrexon Corp. (XON US) was rated new "Buy" at Stifel. The 12-month target price is $69 (U.S.) per share.
with files from Bloomberg News