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RBC slaps 'underperform' rating on TMX Group

TMX Group operates the Toronto Stock Exchange. Maple Group is expected to extend its offer for TMX today.

Deborah Baic/Deborah Baic/The Globe and Mail

Inside the Market's roundup of some of today's key analyst actions. This post will be updated with more analyst commentary during the trading day.

A disappointing first quarter has prompted RBC Dominion Securities analyst Geoffrey Kwan to downgrade TMX Group Inc. to an "underperform" rating.

Earnings per share of 62 cents were well below the average Street forecast of 80 cents, as listing fee revenue was even weaker than most expected and compensation expenses were surprisingly high.

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"While TMX's business is more diversified, we are concerned that many of its businesses are facing significant challenges," Mr. Kwan said in a research note.

He cited four key concerns:

1. The listings environment remains challenging, particularly given TMX's greater exposure relative to peers to the materials and energy sectors;

2. Equity trading volumes remain weak;

3. BOX (Boston Options Exchange) is facing greater competition in the U.S. and Montreal Exchange volume growth may be constrained by continued low interest rates and/or lower market volatility; and

4. Canadian regulators are reviewing industry market data fees.

"As a result, in the near-term, we believe the risks to our earnings per share forecasts are to the downside. A significantly better listings environment (and to a lesser extent trading environment) plus better earnings visibility relating to acquisition integrations would make us more positive on TMX's shares," he said.

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Target: Mr. Kwan, who previously rated the stock as "sector perform," cut his price forecast to $48 from $55. The average price target is $50.75, according to Bloomberg data.


Canaccord Genuity analyst David Tyerman downgraded Chorus Aviation Inc. to "sell" from "buy" after the company last week slashed its dividend by 50 per cent.

Mr. Tyerman said the action highlighted the uncertainty facing the company at a time when its biggest customer, Air Canada, is aggressively cutting costs.

"We are uncertain how CHR fixes its cost problem such that the company can generate meaningful distributable cash flows in the long term," he said in a research note. "Clearly, Air Canada, which generates nearly all of CHR's cash flows, is looking for much lower costs. We think the cost issue brings significant risks to CHR's long-term contract markup and questions as to whether CHR can lower its cost structure sufficiently to meet AC's cost needs."

Target: Mr. Tyerman cut his price target to $1.50 from $4.75. The average target is $3.46, according to Bloomberg.

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Canaccord Genuity analyst David Tyerman raised both his near-term and mid-term financial forecasts on Magna International Inc. after the company's latest earnings blew past market expectations.

The maker of auto parts reported earnings per share of $1.57, compared to Street forecasts for $1.44, thanks mostly to better-than-expected European sales and margins. Magna also modestly increased its 2013 guidance.

"We continue to recommend buying MGA for solid earnings per share growth, modest multiple expansion, and the potential for additional value creation from cash deployment and/or business streamlining," he said.

Target: Mr. Tyerman boosted his price target to $75 (U.S.) from $64. The median target among analysts is $64, according to Thomson First Call.


Raymond James analyst Theoni Pilarinos downgraded Cervus Equipment Corp. to "market perform" from "outperform" after the company's latest quarterly earnings missed Street expectations.

"While ag markets remain resilient, the near-term margin pressure associated with used equipment sales tempers our current enthusiasm. This, coupled with end market uncertainty in Western Canada and a lack of any near-term catalysts for Cervus have turned us more cautious on the company's outlook," Ms. Pilarinos said.

Target: Ms. Pilarinos cut his price target to $20.50 from $22.50. The median target is $23, according to Thomson First Call.


Performance fees at Gluskin Sheff + Associates Inc. this year should be strong enough for the wealth management firm to declare a special dividend this September of 21 cents per share, predicted M Partners analyst Adam Seanor.

Gluskin Sheff last week reported fiscal third quarter earnings per share of 25 cents, as assets under management increased to $6.1-billion, beating Mr. Seanor's forecasts.

"The increased performance in the quarter increases our expectation of performance fees in the fourth quarter," said Mr. Seanor, who now expects those fees to reach $12-million and be high enough to justify the special dividend.

Target: Mr. Seanor raised his price target to $21.25 from $18.75 and reiterated a "buy" rating. The median target is $20.50, according to Thomson First Call.


For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @ eyeonequities

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Investment Editor

Darcy Keith is The Globe and Mail's Investment Editor. He has been a business journalist since 1992 and joined the Report on Business in 2010 from Yahoo! Canada, where he was the senior editor of finance. More


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