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The new bombardier aircraft CSseries is shown in Mirabel, Quebec as it is due to take off for the first time on September 16, 2013.AFP / Getty Images

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

Citing a limited return to his target price for its stock, Raymond James analyst Steven Li downgraded BlackBerry Ltd. (BBRY-Q, BB-T).

"Tapping the brakes after [a] strong run," Mr. Li moved the Waterloo, Ont.-based tech company to "market perform" from "outperform" after an announcement Friday that it will receive $940-million (U.S.) from Qualcomm Inc. by May 31 to settle a dispute over royalty payment.

"BBRY shares are up 42 per cent since our upgrade on Aug. 12, 2016 (NASDAQ is up 19 per cent over same period)," he said. "We are increasing our target price (sum-of-parts updated to reflect the Qualcomm final arbitration award and the dilution from the conversion of the debentures which are now in the money), but given the limited return to target, we are downgrading BBRY."

Mr. Li said the cash infusion from the Qualcomm award is a "significant" boost to the company. He said it enhances its "already strong" balance sheet, projecting $2-billion in net cash.

"We believe BBRY could redeploy some of that cash into potential M&A to accelerate its strategy," he said.

In a research note on the company, Mr. Li analyst added the company's path to $1-billion in software revenue is now "a little clearer."

"The revenue growth part of the story, however, still requires strong execution by the BBRY team," he said. "All in, we can see a path to $1-billion in software revenues with organic growth 15 per cent plus and 25-per-cent-plus EBITDA margins a few years out (calendar 2019/fiscal 2020). … Versus a sample of software companies, in our view this BBRY Software growth and margin profile stacks up well. The group's valuation averages between 14 times to 18 times EBITDA."

Mr. Li raised his target price for BlackBerry shares to $11 from $9.50 to reflect his higher SOTP valuation. The analyst consensus price target is $8.79, according to Thomson Reuters data.

"Based on Friday's close, our SOTP now implies BBRY Software is trading at 15 times estimated fiscal 2020/calendar 2019 EBITDA – in-line with a group of software comparables we look at," he said.

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BMO Nesbitt Burns analyst Fadi Chamoun said he continues to see the value of Bombardier Inc. (BBD.B-T) at over $5 per share by 2020 based on its current restructuring plans.

After hosting the company's management for a series of meetings with institutional investors, Mr. Chamoun said he now possesses greater conviction in his financial forecast for Bombardier, which he said will support a higher share price.

Accordingly, he upgraded his rating for the stock to "outperform" from "market perform."

"To be clear, this is a high risk turnaround story with elevated financial leverage, product development risk associated with Global 7000 (albeit moderate versus past several years), and arguably more intense than historical competitive pressures in certain parts of the business," said Mr. Chamoun. "We do believe, however, that the senior leadership team has sufficiently moved the needle in its ongoing restructuring efforts to deliver on 2018 financial targets of significant operating margin improvement and break even free cash flow. We believe that as the heavy product development cycle ends in 2018, revenue growth should begin to re-accelerate providing for greater coverage of overhead costs and underpinning further margin improvements, particularly in the aerospace segment."

The analyst believes Bombardier is now on track to deliver earnings before interest and taxes (EBIT) of $560-million in fiscal 2017, versus the company's guidance of $530-million to $630-million. He added "highly visible costs take out actions" should bring EBIT to approximately $900-million by early 2019."

"From 2019, a revenue ramp-up phase should begin to occur as Global 7000 enters service with projected EBIT contribution of $300-$350-million by 2020," said Mr. Chamoun. "The CSeries production ramp-up should improve losses in the segment from around $400-million in F2016, to $250-million in F2018 and neutral by 2020. The revenues associated with this ramp-up are in the backlog to a large degree but achieving delivery targets remains execution dependent.

"Transportation has improved profitability faster than anticipated with further runway for growth from both revenue ramp-up as well as additional costs reductions."

Mr. Chamoun maintained a target price for the stock of $2.75. The analyst average target is $2.85, according to Bloomberg data.

"As mentioned earlier, we believe that the new senior leadership team has sufficiently moved the needle in its ongoing restructuring efforts to deliver on 2018 financial targets of significant operating margin improvement and break even free cash flow," he said. "We believe that as the heavy product development cycle ends in 2018, revenue growth should begin to re-accelerate providing for greater coverage of overhead costs and underpinning further margin improvements, particularly in the aerospace segment. Our analysis suggests near-term upside to $2.75 and the potential upside from this self-help story could result in a $5-plus share price if management is successful in its turnaround. This price is derived from our base-case scenario, which is based on revenue targets that are less aggressive than those in management's plan. If Bombardier achieves its revenue and EBIT targets under its 2020 Transformation plan, there is potential upside to $7 in value per share. While we estimate that EBIT will improve to about $804-million by 2018 from an estimated $564-million in F2017, notable improvements in the credit metrics and financial risk profile will not be fully realized until around 2019-2020, when EBIT is expected to almost double to approximately $1.5 billion from the 2018 level.

"There are several risk factors to this investment case with the greatest being deterioration in macroeconomic conditions which could adversely affect the company's cash flow and potentially push back the revenue contribution from new products entry into service. In this case, we could see stock revisit historical lows of mid-to-low $1 a share given the elevated debt levels. Given the base case scenario upside to $5-plus, we think the risk/reward is favourable and we are encouraged to see business aviation bottoming, cost improving at faster than anticipated pace and the Global 7000 progressing well for entry-into-service in H2/18. We note that the commercial aviation division and more specifically BBD's share in the CSeries program is considered a free option in our valuation. Benchmarking based on the valuation attributed to the 49.5-per-cent Quebec share in the program we estimate the value of Bombardier's share to be around 45 cents per share."

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Emphasizing "investing in the tortoise beats the hare," BMO Nesbitt Burns analyst Andrew Kaip upgraded his rating for Kinross Gold Corp. (KGC-N, K-T).

Moving it to "outperform" from "market perform," Mr. Kaip pointed to Kinross' "steady" execution and relative valuation to its peers as well as "recognition of the company's success at advancing brownfield opportunities that continue to improve visibility to sustain current production levels."

"Since we launched on KGC in mid-2015 the company has been successful in improving the production outlook at a number of its short mine life operations, extended its production sustainability by two years, and we now expect peak production for the company to occur in 2021, versus our estimate of 2019 at the time of our launch," said Mr. Kaip. "The company has achieved this goal through a strategy of brownfield growth initiatives, targeted exploration, and the timely acquisition of Bald Mountain and the remaining 50% interest in Round Mountain in late 2015. The company's strategy has also been able to overcome the loss of production related to the suspension of mining at Maricunga and the pending closure of the Kettle River – Buckhorn mine later this year."

"In our view, catalysts through 2017, including the delivery of technical studies at Tasiast Phase II and Round Mountain Phase W, will provide further visibility on the future sustainability of the company's production profile."

Mr. Kaip said he sees several potential opportunities beyond its brownfield projects, including the possibility of extended mine life at Fort Knox and an "additional lift" on reserve life visibility at Kupol and Dvoinoye.

"KGC continues to be active on the M&A front, and a strategic tuck-in acquisition could further stabilize production levels while further improving market perception of jurisdiction risk," he said.

"KGC continues to execute operationally, evidenced by its continued delivery on production guidance targets, despite a bumpy year in 2016, with a strike at Tasiast, and a production curtailment at Paracatu. KGC has met initial production guidance each year since 2010. We are of the view that this track record of consistent execution is beginning to resonate with investors, particularly when a number of the company's peers struggle with execution. Like many of its peers, KGC has successfully improved costs and addressed the balance sheet outlook post peak gold in 2012. While All-in-Costs (AIC) are forecast to rise through the 2017 to 2019 time frame predicated on approval of Tasiast Phase II, our forecasts at $1,250 per ounce gold suggest this capex hurdle is manageable. We expect KGC to maintain current cash levels (more than $1-billion) through this time frame based on forecast cash flow of $3.0-billion offset by project capital (growth and sustaining) of $2.9-billion."

Mr. Kaip raised his target price for the stock to $5 from $3.75. Consensus is $4.91.

"Shares of KGC are trading at a significant discount to the large gold producers, at 1.6 times price/NAV 5% and 5.4 times 2017 estimated CFPS [cash flow per share], compared with peer averages of 2.1 times and 12.0 times, respectively," he said.

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Shares of Shawcor Ltd. (SCL-T) have declined in value by 14 per cent since the release of its first-quarter financial results on May 9.

Based on that drop, Industrial Alliance Securities analyst Elias Foscolos upgraded his rating for the Toronto-based energy services company to "strong buy" from "buy."

"Since the end of March, SCL's stock has declined by 24 per cent despite its Q1/17 results being in line with the market's estimates and above our expectations," said Mr. Fosclos. "In April, the company announced an additional coating contract in Thailand. The last time SCL traded at sub $30 per share was before the announcement of the Tuxpan project, approximately one year ago. We now calculate that SCL is trading at a 7.0 times enterprise value/EBITDA2018. With a material change in the company's outlook over the past year, our unchanged $41.00 target now represents a potential 41-per-cent one-year return (including dividends), which precipitates an upgrade in our rating."

On May 9, Shawcor reported consolidated revenue for the quarter of $360-million, exceeding both Mr. Foscolos's projection ($348-million) while slightly below the consensus estimate ($370-million). Adjusted earnings before interest, taxes, depreciation and amortization of $50-million met the Street's expectation and easily topped Mr. Foscolos's Street-low estimate of $35-million.

"Overall, SCL posted a very solid start to 2017 with all three segments posting results that were above our estimates," he said.

Mr. Foscolos maintained a target price for the stock of $41. Consensus is $41.46.

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Sandvine Corp. (SVC-T) is best managed inside a large private equity firm "as volatile results have curbed investor appetite for the stock," said Desjardins Securities analyst Maher Yagh in the wake of the announcement that it is set to be acquired by Vector Capital.

On Friday after market close, Sandvine announced it has entered into an agreement with the San Francisco-based private equity firm to be acquired for $3.80 per share in cash, which is a 21-per-cent premium above that day's closing price ($3.15).

"We believe that other private equity groups or companies operating in the industry could also be interested in acquiring SVC's shares," said Mr. Yaghi. "While private equity can traditionally generate fewer potential synergies than strategic buyers, we note that Vector Capital also invests in several companies operating in similar industries to SVC, providing the group with more potential for efficiency gains and cross-selling opportunities, in our view. That said, we believe the offer is attractive and the process will likely end up with SVC being taken out."

Mr. Yaghi moved his rating for the Waterloo, Ont.-based tech company to "tender" from "hold" and raised his target price to the acquisition price of $3.80. The analyst average target price is $3.71, according to Bloomberg data.

"The company's stock price was negatively impacted in the fall of 2016 as revenue volatility became more apparent, which created a more favourable environment for M&A," he said. "We had discussed the possibility of SVC being taken out on many occasions in the past, but had also acknowledged that predicting the exact timing was difficult."

Meanwhile, National Bank Financial analyst Richard Tse upgraded Sandvine under the belief a "there's a balanced potential for a competing bid as part of a 42-day go-shop period that allows Sandvine to actively solicit a superior proposal."

"In our view, this acquisition is not entirely surprising given Sandvine's challenges in recent years," he said. "Most recently, those challenges have come from a slowdown in spending in the U.S. cable market care of industry consolidation. Those challenges have also been exacerbated by a soft communications equipment spending environment that's negatively impacted many names in this broad market segment (Communication Service Provider (CSP) capex forecasted to be down 6 oer cent in 2017 according to Ovum) – we believe that includes Sandvine. Even without those challenges, investors following Sandvine will know that this name has had a volatile history of operating performance given the lumpy nature of CSP orders. In our view, all that's made it difficult for management to invest in the long term, and for many investors, it's made for a difficult name to invest in, given the lack of consistent operating results."

Moving the stock "outperform" from "sector perform," Mr. Tse said: "In our view, with the floor set at $3.80, we'd take that bet on the potential optionality based on our analysis in this note, reflecting the change in circumstances with an offer for the company now on the table, and how that may draw competing bids.

He raised his target to $4.50 from $3.25.

Elsewhere, CIBC World Markets analyst Todd Coupland raised his target to the tender offer of $3.80 (from $3) with a "neutral" rating.

"Our view is Vector's valuation fairly reflects Sandvine's growth and return prospects" he said. "Sandvine's end market has been lacklustre over the past three years, yielding roughly flat revenue. While the company has gained market share, the end markets have not been growing. A return to double-digit revenue growth is unlikely."

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In other analyst actions:

Scotia Capital analyst Orest Wowkodaw downgraded Taseko Mines Ltd. (TKO-T) to "sector underperform" from "sector perform" with a target of $1.75 (unchanged). The average is $1.98.

Cormark Securities Inc. analyst Gavin Fairweather downgraded Distinct Infrastructure Group Inc. (DUG-X) to "market perform" from "speculative buy" with a $1.60 target, down from $2. The average is $2.14.

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