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Tissue on a conveyer belt at Cascades Tissue Group plant, in Candiac, March 3, 2011.Christinne Muschi/The Globe and Mail

Inside the Market's roundup of some of today's key analyst actions

In reaction to higher containerboard estimates, CIBC World Markets analyst Hamir Patel upgraded his rating for Cascades Inc. (CAS-T) to "sector outperformer" from "sector underperformer."

"Six months ago, we initiated coverage of Cascades with a sector underperformer rating. Since that date (Feb. 29), Cascades has significantly underperformed both its containerboard peers and tissue peers, as well as the major indexes," he said.

"We believe the underperformance was warranted over this period given CAS' significant leverage to containerboard prices. In a world of no kraft liner hike (which was our previous assumption), box prices would have likely continued to erode and market concerns about Cascades" comparatively low-level of integration (53 per cent, 69 per cent counting JVs) would have grown as the 'displacement effect' played out (as incumbent suppliers to all the box plants acquired in recent months are displaced by the plants" new equity owners). In that world, CAS would have been compelled to significantly accelerate its capex plans to drive higher integration rates across its containerboard platform (killing the FCF story that now looks much improved)."

Mr. Patel said, as recently as Aug. 22, he was emphasizing "continued erosion" in semi-chem medium containerboard prices, and felt U.S. producers were likely to push for a price hike by the end of the year. However, International Paper Co. (IP-N) "surprised" the market on Aug. 25 by raising its prices.

"Regardless of whether the increase (be it $50 (U.S.)/ton or only a portion of that) can be sustained beyond 2017, we expect the market will value containerboard equities based on the hike perceived to be initially realized (the RISI benchmark determination which directly drives 50 per cent plus of box contracts will only be known in mid-October), with potential multiple expansion for the group as popular prior notions that containerboard is 'no longer a commodity business' gain traction again, and speculation grows that producers may slowly transition to a cost-plus model (at cyclical high EBITDA margins no less!)," he said.

Mr. Patel said Cascades' outlook changed "dramatically" in a single week, highlighting its "significant" earnings leverage to higher prices given its core containerboard business (48 per cent of EBITDA over the last 12 months) and its Greenpac linerboard mill joint venture. He also emphasized the company's "valuation leverage as U.S. peer multiples expand and higher prices ease concerns about Cascades' balance sheet."

"At the same time, while the top-two producers (IP, WestRock Co.) will likely have to run their mill systems slower to support a hike, CAS is a free rider that can run full," he said.

He added: "While it remains to be seen if a further increase in containerboard prices will be sustainable into 2018, with producers representing 80 per cent plus of North American industry capacity reportedly already on board with the $50 (U.S.)/ton (up 8 per cent) October price hikes, we would not advise standing in front of the containerboard train. Over the last decade, we cannot recall an instance where producers have fallen in line so quickly with the first mover (and so consistently in terms of timing and the scale of their initiatives!). We now expect the hike to be 75 per cent implemented, higher than our initial estimate of up to 50 per cent given such strong producer support."

Mr. Patel raised his 2017 and 2018 EBITDA forecasts to $413-million and $407-million, respectively, from $365-million and $355-million, to reflect higher containerboard realizations.

His target price for the stock rose to $12 from $8. The analyst consensus price target is $11.25, according to Thomson Reuters.


Onex Corp. (OCX-T) continues to find opportunities despite a "competitive and challenging" investment environment, according to BMO Nesbitt Burns analyst Bert Powell.

"Globally, leverage buyouts remain significantly low relative to last year and private equity dry powder remains high," he said. "Onex remains disciplined in its investment approach and continues to look for further opportunities."

Mr. Powell pointed out the company's second-quarter net asset value per share rose 0.5 per cent from the previous quarter to $55.76. However, NAV per share growth sits below its target of 15 per cent as "company continues to allocate capital and enter the fix/build/growth stage of the investment cycle."

"North American credit markets continue to improve relative to the prior year," said Mr. Powell. "New loan and high yield bond issuance remain fairly active but still down 20 per cent year over year. Also, YTD [year to date], CLO [collateralized loan obligations] issuance is 60 per cent lower than the prior year. In Europe, credit markets and LBO [leveraged buyout] activity dropped [approximately] 30 per cent year over year in Q2/16. Post the Brexit vote, credit markets remain strong. It's still early to assess which sectors or locations might be mostly affected by the Brexit. But in the short to medium term, OCX believes it unlikely that there would be any real effect on the company's ability to invest in the region. Onex indicated that the negative currency impact due to the weaker sterling would not be as meaningful on the overall portfolio. Only 3 per cent of aggregate revenues across all 25 operating companies are generated in the U.K. For businesses that do have revenue in sterling, each one is addressing the situation appropriately to mitigate the risk. Onex has $2.2-billion of cash and $3.0-billion of uncalled capital, without giving effect to the pending investments that are expected to close in H2/16."

Mr. Powell maintained his "market perform" rating for the stock and raised his target price to $84 from $83.50. The analyst consensus price target is currently $84.70.


Credit Suisse analyst Ralph Profiti downgraded Nautilus Minerals Inc. (NUS-T) to "neutral" from "outperform" based on greater uncertainty surrounding funding and timing of its project milestones.

The move comes after the Toronto-based company entered into a subscription agreement with a pair of major shareholders for gross proceeds of $20-million. One of the stakeholders is a joint venture partner in its Solwara 1 Project.  

"We estimate alternative funding may still be required to meet 2018 commitments," he said. "With the termination of contracts for the construction of seafloor production equipment that were in earlystages and implementation of workforce reduction measures, we have reduced our estimated cash burn rate to $7-9-million/quarter (from $20-35-million/qtr) for 2H16-2017 vs. cash at end-2Q16 of $51-million, leaving NUS with sufficient liquidity in the near-term. Additional funding may be required ahead of commitments in 2018-2020. As a result of these measures, we have taken a more conservative approach to the Solwara-1 timeline and pushed back first production to 2021 (from 2019)."

He lowered his price target for the stock to 20 cents from 30 cents.

Mr. Profiti is currently the lone analyst of the stock, according to Bloomberg.


Shares of Square Inc. (SQ-N) are now fairly valued in the view of BTIG analyst Mark Palmer.

In reaction to a rise in price of almost 40 per cent since June 27, he downgraded his rating for the tech company to "neutral" from "buy."

"SQ's rebound has given rise to renewed questions about what multiple should be assigned to the company's projected adjusted EBITDA. While we felt comfortable assigning a 13x multiple to our 2020E adjusted EBITDA of $519-million discounted back at 10 per cent to arrive at a $12 value for SQ shares, we think additional substantiation of the company's growth trajectory is necessary before a higher multiple would be merited," he said in a note quoted on

He removed his target price of $12 (U.S.) for the stock. The analyst average target price is $12.85, according to Bloomberg.


Expressing concern over rising competition and declining pricing power, Axiom Capital analyst Victor Anthony initiated coverage of Netflix Inc. (NFLX-Q) with a "sell" rating.

Mr. Anthony also cited increased content costs in expressing skepticism about the company's ability to meet the Street's projection for long-term subscriber gains.

He set a price target for the stock of $80 (U.S.). The analyst average is $102.


Broadcom Ltd. (AVGO-Q) remains well-positioned to deliver earnings per share of over $16 (U.S.) by fiscal 2019 while its share price rises to over $200 in the next few years, said RBC Dominion Securities Amit Daryanani.

"We think AVGO is positioned to show not just EPS upside but also revenue upside when they report July quarter results on Sept. 1," he said.

"We see multiple upside levers: 1) Better AAPL [Apple Inc.] trends given implied sell through at AAPL was 44 million units (sell-in was 40M) and implied Sept. quarer quarter-over-quarter guide was better than recent trends/expectations, 2) HDD Inflecting: Aggregate HDD TAM [hard disk drive total addressable market] was better in June quarter and notably higher in Sept. quarter driven by strong hyperscale and gaming demand (8TB/10TB Hyperscale ramp should help AVGO), 3) Enterprise: We expect strong server/hardware data from IBM being an incr. positive for ELX [Emulex Corp.] (AVGO's core FC HBA), and 4) Wired: Expect stable to improving underlying trends coupled with alleviating production bottleneck being a positive. Beyond the July quarter, we see lower interest expense as an upside lever for EPS as AVGO lowered their interest rate to 3 per cent from 3.5 per cent prior."

Mr. Daryanani is projecting quarterly revenue and EPS of $3.78-billion and $2.79, ahead of the company's guidance ($3.75-billion, $2.75) and the Street consensus ($3.76-billion and $2.77). He raised his full-year 2016 and 2017 EPS estimates to $10.94 and $13.05, respectively, from $10.88 and $12.81.

Maintaining his "top pick" rating, he raised his target price for the stock to $190 from $185. Consensus is $192.81.


The third-quarter results for Brocade Communications Systems Inc. (BRCD-Q) were a "mixed bag," said BMO Nesbitt Burns analyst Tim Long.

Brocade, a San Jose-based tech company, reported revenue and earnings per share of $591-million (U.S.) and 21 cents, respectively, beating the projections of both Mr. Long and the consensus ($576-million/16 cents and $557-million/17 cents).

Mr. Long said the results were due largely to gains made from the recent acquisition of Ruckus Wireless, overshadowing weak storage trends.

"Ruckus revenues of $78-million were above guidance of $50-$60 million," he said. "While part of the beat was related to a lower-than-expected impact from purchase accounting adjustments, Brocade also saw good demand for WLAN equipment as the 802.11ac upgrade cycle helped drive better-than-expected growth. We continue to believe the Ruckus acquisition will add an element of growth to Brocade that was previously missing and also expect cross-selling opportunities to emerge with Brocade's campus switch offerings."

In reaction to the results, Mr. Long raised his 2016 EPS forecast to 93 cents from 90 cents. His 2017 estimate fell to 99 cents from $1.03, citing lower revenues.

"We remain on the sidelines as the timeline to a recovery in several of Brocade's key businesses remains uncertain," he said.

Mr. Long kept his "market perform" rating for the stock and raised his target to $10 from $9. Consensus is $10.57.


In other analyst actions:

Longbow analyst David MacGregor downgraded Harley-Davidson Inc. (HOG-N) to "underperform" from "neutral" after a check of dealers brought the expectation of lower-than-projected sales. He maintained a $40 (U.S.) target. The average is $50.

Encana Corp. (ECA-N) was rated at new "hold" by KLR Group analyst John Gerdes with a target price of $10 (U.S.). The average is $9.89.

Wells Fargo Securities analyst Jennifer M. Fritzsche upgraded T-Mobile US Inc. (TMUS-Q) to "outperform" from "market perform" without a specified target. The average target is $51.26 (U.S.).

Raymond James analyst Buck Horne upgraded Post Properties Inc. (PPS-N) to "outperform" from "market perform." He did not change his 12-month target of $72.50 (U.S.). The average is $66.90.

Rosenblatt Securities analyst Chris Olin downgraded Haynes International Inc. (HAYN-Q) to "neutral" from "buy." He raised his target to $39 (U.S.) from $37. The average is $43.

Mufg Securities Americas Inc. analyst Stephen Bersey downgraded Autodesk Inc. (ADSK-Q) to "underweight" from "neutral." He maintained his target of $50 (U.S.), versus the consensus average of $66.13.