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.

Canaccord Genuity analyst Michael Graham lowered his financial estimates for Twitter Inc. (TWTR-N) "significantly," emphasizing a "fairly pessimistic" outlook about the social media company's user growth and monetization improvements.

Noting Twitter's share price has fallen almost 27 per cent thus far in 2016 and 46 per cent since it reported earnings in late October, Mr. Graham said his "buy" rating for the stock during this period was clearly wrong.

"With continued management turnover and declining engagement metrics in the fourth quarter, it is tough to gain any conviction that key user metrics will gain traction in the near term (and we are fairly certain it didn't happen in Q4)," he said. "Very slow user growth remains the primary negative, and our checks suggest this continued in Q4. Engagement also declined during Q4 on a minutes/user basis for the sixth straight quarter."

Mr. Graham noted Twitter's U.S. unique visitor growth, according to ComScore, dropped approximately 27 per cent year over year from 38 per cent in the third quarter. He said it finished 2016 "even slower" at 18 per cent in December. He also said engagement, measured by minutes per user, fell 21 per cent year over year in the fourth quarter, on the heels of an average decline of 31 per cent in the previous five quarters.

"Ostensibly to combat declining engagement, Twitter appears to be taking steps to protect its most influential users," the analyst said. "Recent reports suggest that Twitter is serving fewer ads to its most engaged users. This could lengthen the amount of time it takes to get to the projected $5-billion advertising revenue target underpinned by a 5-per-cent ad load that was referenced at the 2014 analyst day."

Mr. Graham lowered his 2016 sales estimate to $2.93-billion from $3.285-billion. His earnings per share projection fell to 52 cents from 58 cents.

"We believe Twitter will need to demonstrate results on either user or average revenue per user (ARPU) growth to regain a multiple more in line with its growth, and while we do not have a clear line of sight to these fundamental improvements now, we believe there are several possible ways for this to occur as we go through the year," he added.

Maintaining his "buy" rating, he lowered his price target for the stock to $25 (U.S.) from $38. The analyst consensus price target is $30.74.

"We note that Twitter is essentially a media company growing revenue above 30 per cent and EPS above 40 per cent (on our lower estimates), and is trading at [approximately] 21 times our lower 2017 EPS estimate, and we find this valuation/growth combination compelling, especially if the company can figure out a way to return to user growth later this year," he said.

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The current valuation for Colliers International Group Inc. (CIGI-Q, CIG-T) is "well ahead" of its peers, according to RBC Dominion Securities analyst Anthony Jin, who said he's "hard-pressed" to remain a buyer despite positive industry signs and the company's execution.

He downgraded his rating for the Toronto-based commercial real estate company to "sector perform" from "outperform."

"Global and regional CRE peer valuations have pulled back materially over the last six months on growing unease regarding a potential peaking of the commercial real estate cycle, turmoil in the broader financial markets and lower potential asset values in the face of rising interest rates," said Mr. Jin. "Colliers shares have fared relatively well, declining only 4 per cent year to date (10-per-cent decline for Nasdaq) relative to their CRE peers, which have declined 15-22 per cent year to date.

"Colliers International shares currently trade at 10.2 times consensus 2016 projected and 9.2 times 2017 projected enterprise value/EBITDA estimates, nearly two-times multiple points higher than commercial real estate services peers, which trade at 8.1x and 7.8x, respectively. Historically, CIGI shares have trended with aggregate peer valuation. Given the magnitude of the valuation disparity and considering the slowing growth of investment sales (in U.S. dollars) in [Europe, the Middle East and Africa] and [Asia-Pacific], we believe taking a more neutral stance on shares is prudent. We reduce our target EV/EBITDA multiple to 10 times (from 11.5 times), in line with the 10-year global peer average."

He lowered his 2016 and 2017 EBITDA estimates to $197.4-million (U.S.) and $219.1-million from $200.4-million and $222.8-million, respectively. His adjusted, diluted EPS projections fell to $2.41 and $2.66 from $2.46 and $2.72.

"We believe Colliers should continue delivering solid results through much of 2016, driven by organic growth initiatives (i.e. recruitment, cross-selling opportunities and productivity/market share gains) supplemented by a solid pace of M&A ($100-million-plus of revenues in 2015 and $25-30-million year to date 2016 by our estimates)," he said.

He lowered his price target for the stock to $47 from $54. Consensus is $49.60.

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The new strategical goals for American International Group Inc. (AIG-N) "appear out of reach," said BMO Nesbitt Burns analyst Charles Sebaski, who downgraded his rating for the stock to "market perform" from "outperform."

In a significant overhaul announced last Tuesday, Mr. Sebaski said the U.S. insurance company laid out operation and profitability targets that will be very difficult to deliver.

"There are two components of the plan that are interdependent and about which we are particularly concerned," he said. "First, AIG plans to improve its core commercial accident year combined ratio excluding catastrophes by 6 points to 60 per cent by the end of 2017; this is 460 basis points lower than we are forecasting. We had already been forecasting core underwriting improvement over the next two years of 1.8 per cent, but given the headwind of current P&C pricing, we think 6 per cent will be incredibly difficult. Second, a commitment to returning $25-billion of capital to shareholders over the next two years compares to the $19-billion we are forecasting. Capital return had been a core aspect of our thesis; however, the $25-billion is premised on the company achieving that 6 per cent underwriting improvement about which we have doubts. We believe that AIG has overpromised in an attempt to placate investors while a very high-profile activist shareholder continues to call for the total breakup of the company. We agree with management's assessment that a breakup of AIG is not in shareholders' best interests today. We see these latest goals as an expectation trap that the stock will be hard-pressed to get away from."

Taking into account a $3.6-billion (U.S.) reserve charge in the fourth-quarter 2015, Mr. Sebaski said he now expects a loss of 93 cents for the quarter. His 2016 EPS projection also fell to $5.10 from $5.15.

His target price for the stock declined to $62 from $68. The analyst average target is $67.65, according to Bloomberg.

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RBC Dominion Securities analyst Paul Treiber expects the fourth-quarter results and first-quarter guidance for Sierra Wireless Inc. (SWIR-Q, SW-T) will meet estimates.

He also anticipates stronger organic growth through 2016; however, he feels operating leverage may continue to "restrain" investor sentiment.

Ahead of the release of the Vancouver-based tech company's results on Thursday, Mr. Treiber said he expects revenue of $149-million (U.S.), representing no change from year over year and a decline of 6 per cent in organic growth.  That result is in line with the Street and the mid-point of the company's guidance ($148-million to $151-million). His EPS estimate of 10 cents is also in line with the consensus and the mid-point of guidance (9-11 cents).

"Q1 guidance is likely to reflect normalized demand following second half of the 2015 fiscal year challenges (transition to next-gen Intel processors, reduced inventory at an automotive customer)," the analyst said. "We're looking for Sierra to provide Q1 guidance for $155-158-million revenue (3-5 per cent year over year, negative 1 per cent to 1 per cent organic) and 15-18 cents adjusted EPS, in line with the street at $155-million and 15 cents respectively.

He said he expects sequentially lower gross margins and higher operating expenses.

"Sierra is expanding its sales force and making product development and support investments in conjunction with new design wins," he said. "With a 2- to 3-year lag until revenue on some large design wins, upfront investments may slow the pace of Sierra's operating leverage. Although the lower Canadian dollar is a tailwind to margins (40 per cent of opex in Canada) and helps mitigate the impact from new investments, we now expect our EBIT margins of 6.3 per cent 2016 fiscal and 7 per cent 2017, which remains below Sierra's long-term operating model for 10-per-cent non-GAAP EBIT margins."

Accordingly, he lowered his 2016 and 2017 EPS projections to $1.05 and $1.27 from $1.11 and $1.76, respectively.

Keeping his "sector perform" rating, he lowered his price target for the stock to $20 from $27. Consensus is $21.21.

"We believe investor sentiment on Sierra may remain restrained pending better visibility to organic growth re-acceleration and improved operating leverage," he said.

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In a research report previewing fourth-quarter earnings for pipelines, utilities and power companies, CIBC World Markets analyst Paul Lechem made several changes to his target prices.

The changes included:

Algonquin Power & Utilities Corp. (AQN-T, sector outperform) to $12 from $11.50. Consensus: $12.16.

He said: "We are expecting strong year-over-year growth in Q4/15 (EBITDA up 10 per cent), reflecting a stronger U.S. dollar (approx. 80 per cent of EBITDA in U.S. dollars), the start-up of St. Damase Wind (Dec. 2, 2014), Bakersfield I Solar (April 14, 2015), and Morse Wind (April 22, 2015) projects, and positive rate case settlements (a $12.4-million U.S. annual rate settlement for EnergyNorth came into effect July 1)."

Enbridge Income Fund Holdings Inc. (EFN-T, sector outperform) to $38 from $40. Consensus: $35.95.

He said: "The Enbridge guidance call on Dec.  2 reiterated expectations that annual EPS would fall in the lower half of the target range of $2.05-$2.35. With nine-month year-to-date EPS of $1.62, that suggests Q4 results would fall in a range of 43-58 cents versus Q4/14 actual of 49 cents. We are forecasting a 13-per-cent y/y increase in Q4 at 55 cents EPS. While Enbridge is benefiting from the $9-billion of projects placed into service in 2014 and a further $8-billion in 2015, there have also been headwinds from delays placing Line 9B into service, lower contributions from Aux Sable, and upstream, downstream and pipeline constraints earlier in the year."

Other changes were:

Hydro One Ltd. (H-T, sector perform) to $24 from $22. Consensus: $23.50.
Inter Pipeline Ltd. (IPL-T, sector perform) to $30 from $33. Consensus: $28.55.
Northland Power Inc. (NPI-T, sector outperform) to $27 from $25. Consensus: $19.90.
TransAlta Corp. (TA-T, sector perform) to $7.50 from $9. Consensus: $5.94.
TransCanada Corp. (TRP-T, sector outperform) to $57 from $56. Consensus: $54.59.

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In other analyst actions:

Air Canada (AC-T) was downgraded to "neutral" from "outperform" at Macquarie by equity analyst Konark Gupta. The 12-month target price is $9.50 (Canadian) per share.

Bluedrop Performance Learning Inc. (BPL-X) was raised to "buy" from "speculative buy" at Beacon Secs by equity analyst Gabriel Leung. The 12-month target price is 35 cents (Canadian) per share.

Equity Residential (EQR-N) was downgraded to "neutral" from "buy" at Mizuho Securities USA by equity analyst Richard Anderson. The 12-month target price is $82 (U.S.) per share.

Magellan Aerospace Corp. (MAL-T) was raised to "buy" from "hold" at TD Securities by equity analyst Timothy James. The 12-month target price is $19.50 (Canadian) per share.

MAXIMUS Inc. (MMS-N) was raised to "outperform" from "market perform" at Raymond James by equity analyst Brian Gesuale. The 12-month target price is $64 (U.S.) per share.

Pine Cliff Energy Ltd. (PNE-X) was rated new "buy" at Dundee by equity analyst Chad Ellison. The 12-month target price is $1.60 (Canadian) per share.

Stantec Inc. (STN-T) was downgraded to "neutral" from "buy" at Dundee by equity analyst Maxim Sytchev. The 12-month target price is $37 (Canadian) per share.

Seagate Technology PLC (STX-Q) was raised to "hold" from "sell" at Benchmark by equity analyst Mark Miller. The 12-month target price is $32 (U.S.) per share.

Teranga Gold Corp. (TGZ-T) was downgraded to "market perform" from "buy" at Cormark Securities by equity analyst Kyle Mcphee. The 12-month target price is 45 cents (Canadian) per share.

Tiffany & Co. (TIF-N) was downgraded to "market perform" from "outperform" at Cowen by equity analyst Oliver Chen. The 12-month target price is $70 (U.S.) per share.

Vertex Pharmaceuticals Inc. (VRTX-Q) was raised to "buy" from "hold" at Jefferies by equity analyst Brian Abrahams. The 12-month target price is $120 (U.S.) per share.

United States Steel Corp. (X-N) was downgraded to "neutral" from "outperform" at Macquarie by equity analyst Aldo Mazzaferro. The 12-month target price is $9 (U.S.) per share.

With files from Bloomberg News