Inside the Market’s roundup of some of today’s key analyst actions. This blog post will be updated with further actions throughout the trading day.
Suncor Energy Inc.’s dividend hike this week won’t be its last, said Canaccord Genuity analyst Phil Skolnick as he reiterated his “buy” rating on the oil sands producer’s shares.
“We believe the company has stated loud and clear that it is committed to do what’s best for shareholders, which is to return cash in a yield-hungry market,” Mr. Skolnick said in a research note. “We believe this commitment – along with continued improvements in operational reliability, an attractive production growth profile and declining oil sands costs – should result in a re-rating of the stock.”
Suncor announced its largest dividend increase in its history as it reported first-quarter earnings late Monday, increasing its quarterly payout to 20 cents a share from 13 cents. It also said it plans to speed up the purchase of its own shares.
The dividend will be reviewed again early next year, and a further hike could be announced when fourth-quarter results come out. “Management stated, on its conference call yesterday, to expect the dividend to grow competitively with earnings and cash flows,” Mr. Skolnick pointed out.
Suncor’s new chief executive officer, Steve Williams, is pledging a careful expansion style with a focus on shareholder returns rather than aggressive capital expenditures, even if it means sacrificing bigger projects that could rapidly grow production.
For Mr. Skolnick, Suncor “sticks out like a sore thumb” – in a positive way – when compared to other senior Canadian oil producers. Suncor is the only company to generate free cash flow this year (and a massive one at that) allowing it to commit to competitive dividend increases. Meanwhile, it trades at one of the lowest valuations among its peers when looking at enterprise value to cash flow valuations, he said.
Target: Mr. Skolnick maintained a $45 price target. BMO Nesbitt Burns analyst Randy Ollenberger also reiterated an "outperform" rating and raised his price target to $42. The average price target among analysts is $41.67, according to Bloomberg data.
CGI Group Inc. stock still has considerable upside potential even after its 18 per cent surge on Tuesday, analysts predict.
CGI impressed investors and the Street as it increased the potential cost synergies over the next two years with the integration of Logica PLC, its recently acquired U.K. information technology provider.
Desjardins Securities analyst Maher Yaghi reiterated a “buy” rating and RBC Dominion Securities analyst Paul Treiber affirmed his “outperform” rating as both raised their price targets.
“Q2 is the first quarter Logica margins exceeded street expectations, which validates the restructuring phase of the acquisition,” commented RBC’s Mr. Treiber. “Investors now have greater confidence going into the next step of integration, where CGI is expected to ‘transform’ Logica toward higher margin/quality revenue over time.”
Mr. Yaghi said valuations should continue to improve as cost synergies become more apparent over the coming year.
Target: Mr Yaghi raised his target to $37.50 from $29.50. Mr. Treiber raised his price target to $38 from $33. The average price target is $34.98.
Potash Corp. of Saskatchewan Inc. offers an attractive dividend that should double as the company’s expansion projects near completion, said Cantor Fitzgerald analyst Peter Prattas.
He initiated coverage on Potash Corp. with a “buy” rating, noting that the shares have lost ground over the past 12 months and failed to rally with most fertilizer majors in 2012.
“We expect shares will outperform going forward as potash demand recovers,” he said, noting that earnings are improving as the company’s expansion projects come online. “We expect free cash flow to match earnings over the next couple of years allowing for momentous increases to the dividend.”
Target: Mr. Prattas set a $50 (U.S.) one-year price target. The average price target is $46.35 (U.S.).
Canadian Oil Sands Ltd.’s cash flow missed Street expectations for the first quarter, as interest expenses came in a bit high and its 36.7-per-cent-owned Syncrude operation struggled with several unplanned outages.
But Raymond James analyst Justin Bouchard upgraded the stock to “market perform” from “underperform” after the stock’s slide in April improved its valuation metrics. He cautioned investors against potential problems ahead, given that it’s drawing down its cash balance to fund projects and there continues to be potential for cost inflation in the oil sands.
Target: Mr. Bouchard maintained a price target of $18.50 (Canadian) . The average target is $20.79.
Newmont Mining Corp. faces the twin challenges of delivering growth and lowering costs, but is constrained by its scale and maturing assets, said CIBC World Markets analyst Alec Kodatsky.
This is making it difficult for the company to stand out against many of its higher-growth peers, and its variable dividend policy is creating further headwinds in the weak gold price environment, he said.
“There is little in the way of catalysts for 2013, although we expect consistent improvements in production and costs as the year advances,” he said.
Target: Mr. Kodatsky cut his price target to $45 (U.S.) from $52 and reaffirmed his “sector performer” rating. The average target is $42.14.
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