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.
U.S. airline companies are likely to be range bound in the near term as the likelihood for disappointing June traffic results is greater than the prospect of surprise, said Credit Suisse analyst Julie Yates.
"Until there is evidence June didn't worsen from May, and investors get comfort from management teams that capacity growth will moderate in [the fourth quarter] and in 2016, it seems unlikely investors will step up to the plate," she said.
Ms. Yates upgraded the stock of Alaska Air Group Inc. (ALK-N) to "outperform" from "neutral" based on its consistency and relative market position. She downgraded Spirit Airlines Inc. (SAVE-Q) to "neutral" from "outperform" on its margin guidance risk and yield headwinds from aggressive matching.
She justified her rating change for Alaska by saying: : "We are less worried about ALK's issues in [Seattle] with the rate of competitive capacity adds declining, and more worried about industry-wide fare compression. … We expect ALK to buy back up to 8 per cent of its market cap in 2015, second only to [Delta Air Lines Inc.] and we see the least downside to ALK consensus. Also, ALK has the lowest level of labor inflation over the next several years relative to peers with recent long-term deals."
Her earnings per share estimate for 2015 dropped to $5.95 (U.S.) from $6.03 but rose for 2016 to $6.11 from $6.00. With that change, her target price increased to $78 from $75. Consensus is $77.
On Spirit, she said: "While we continue to view SAVE as one of the best long-term, secular growth stories in the domestic airline sector, with a widening cost advantage and solid balance sheet, we are stepping to the sidelines ahead of Q2 following more aggressive competitor fare actions and risk to margin guidance. Fare compression (which management warned investors of back in December) has spread beyond Dallas and Spirit is a direct target of [American Airlines'] more aggressive revenue management."
The analyst lowered her target price to $69 , feeling the consensus ($91.60, according to Thomson Reuters) is too high. She also dropped her earnings per share estimates for 2015 and 2016 to $4.51 and $4.83 from $4.63 and $5.16.
"While the stock has sold off 17 per cent [in the year to date], negative earnings momentum and limited revenue visibility make multiple expansion unlikely over the coming months," she said.
On the sector in general, she concluded: "Sentiment deterioration has solely been driven by concerns regarding oversupply and pricing domestically. Given the domestic market has been the linchpin to the bull thesis, longer-term holders likely continue to question conviction until actions offer convincing evidence. We remain convinced that the industry has in fact changed and management teams are committed to capacity discipline and driving higher returns. For our conviction to remain, we too need companies to offer signals that unit revenue declines are temporary and there is a willingness to balance supply and demand. The successful system wide fare hike last week offered optimism that carriers want to take price, but shifting revenue management strategies at [American Airlines] complicate the thesis and remain the principal variable along with domestic capacity plans."
Though he continues to view Arch Capital Group Ltd. (ACGL-Q) as "a best-in-class specialty insurer/reinsurer," BMO Nesbitt Burns analyst Charles Sebaski downgraded the stock to "market perform" from "outperform" in the wake of a 12-per-cent appreciation in share price thus far in 2015.
Arch has risen almost 9 per cent since May 1 alone, and it closed Wednesday at $66.29 (U.S.), just less than Mr. Sebaski's $67 year-ahead price target. He says the insurance company's premium price to book value multiple is due largely to its underwriting discipline
"We believe much of this appreciation was driven by the market discussion that Arch would bid for [Axis Capital]," said Mr. Sebaski. "This speculation caused the shares of both companies rise, but we view such a tie-up as unlikely, especially at a valuation that would be attractive for current ACGL shareholders. For this reason we would recommend that investors wait for future pullbacks before becoming more aggressive on accumulating Arch shares."
He added: "We continue to view the company's move into smaller account primary insurance (including private mortgage insurance) and reducing its reinsurance business as favorably. However, some of these businesses will take time to fully play out, especially the company's move into primary mortgage insurance. We expect Arch to be able to build scale in primary mortgage insurance over a multi-year period and to become a material contributor to the company's earnings in the future; however, we estimate this business will account for less than 10% of earnings in 2015. For these reasons we will be waiting for better entry points into the stock."
Mr. Sebaski maintained his $67 target price. The analyst consensus target price is $66.23.
Following "less than stellar" third-quarter 2015 results, Actuant Corp. (ATU-N) has a "tough road ahead," said BMO Nesbitt Burns analyst Charles Brady.
The company reported adjusted earnings per share of 63 cents (U.S.), but Mr. Brady noted that result included a $5-million tax credit and a decline in shares of 1 million following a buyback. Discounting those elements, he said the figure would be 50 cents, compared to his 52-cent estimate and a consensus of 53 cents.
He pointed out all three of the company's segments saw core sales declines and shrinking margins, adding: "which combined with tougher F/X headwinds, provide less hope for Actuant in the upcoming fiscal fourth quarter."
The company also lowered guidance for the fourth quarter for both sales (to $1.24-1.25 billion from $1.245-1.265 billion) and EPS (to $1.55-1.60 from $1.65-1.75). That caused Mr. Brady to lower his 2015 EPS estimate to $1.60 from $1.62 and 2016 to $1.48 from $1.77.
"While the weakness in Actuant's Energy business was expected, the softness in the Industrial business is more concerning," he said. "Engineered Solutions also continued to be constrained by muted end markets, which will persist in fiscal 4Q and likely into FY2016. Given inherent macro deterioration across most major end markets and further currency headwinds, we see limited near-term improvement in the company's valuation."
Mr. Brady lowered his price target to $24 from $26, compared to a consensus of $26.20. He maintained his "market perform" rating.
Following positive mid-stage study results from BioMarin Pharamaceutical Inc. (BMRN-Q) on its BMN-111 (vosoritide) drug, used to treat children with the most common form of dwarfism, Canaccord Genuity analyst Adam Walsh raised his probability for the success of the achondroplasia treatment to 70 per cent from 50 per cent.
Mr. Walsh projects peak sales of BMN-111 to be approximately $2-billion (U.S.).
He reiterated his "buy" rating while raising his target price to $150 from $115. Consensus is $135.33.
RBC Securities analyst Michael Yee bumped his target to $145 from $125, while JPMorgan's Corey Kasimov increased his target to $151 from $140.
Synergy Pharmaceutical (SGYP-Q) announced "the best positive top-line results we could have hoped for" in tests for Plecanatide, its new drug to treat idiopathic constipation, said Canaccord Genuity analyst Corey Davis.
In the first of two Phase 3 trials, Mr. Davis said both doses (3 milligrams and 6 milligrams) "met the primary endpoint with flying colors."
He maintained his "buy" rating and increased his target price to $19 from $11. Consensus is $9.35.
Meanwhile, Cantor Fitzgerald analyst Irina Koffler raised her target to $14 from $8.50
In other analyst actions:
AMC Entertainment Holdings Inc (AMC-N) was raised to "buy" from "neutral" at B. Riley by equity analyst Eric Wold. The 12-month target price is $35 (U.S.) per share.
Carter's Inc (CRI-N) was downgraded to "neutral" from "buy" at Sterne Agee CRT by equity analyst Tom Nikic. The 12-month target price is $105 (U.S.) per share.
Energen Corp (EGN-N) was raised to "overweight" from "sector weight" at KeyBanc by equity analyst Chris Stevens. The 12-month target price is $84 (U.S.) per share.
Genuine Parts Co (GPC-N) was raised to "buy" from "hold" at Argus by equity analyst William Selesky. The target price is $104 (U.S.) per share.
Juniper Networks Inc (JNPR-N) was raised to "outperform" from "neutral" at Wedbush by equity analyst Scott Thompson. The 12-month target price is $32 (U.S.) per share.
Juno Therapeutics Inc (JUNO-Q) was rated new "buy" at Maxim Group by equity analyst Jason Mccarthy. The 12-month target price is $78 (U.S.) per share.
Southwest Airlines Co (LUV-N) was downgraded to "underweight" from "overweight" at Barclays by equity analyst David Fintzen. The target price is $39 (U.S.) per share.
Mylan NV (MYL-Q) was rated new "buy" at BTIG by equity analyst Tim Chiang. The 12-month target price is $85 (U.S.) per share.
Newfield Exploration Co (NFX-N) was raised to "buy" from "hold" at Stifel by equity analyst Daniel Guffey. The 12-month target price is $48 (U.S.) per share.
Wedbush maintained a "Neutral" rating on Oracle (ORCL-N), but cut its price target to $40 (U.S.) from $42 after the company's quarterly results missed expectations. Cantor Fitzgerald reiterated its "Buy" rating and $48 price target.
Jefferies analyst Stephen Volkmann reiterated a "Buy" rating and boosted his price target on Ritchie Bros (RBA-N) to $35 (U.S.) from $30, saying the stock has additional upside.
"We continue to believe new management can increase profitability and better utilize an under-levered balance sheet to further drive shareholder value. Recent auction trends suggest growth continues to run ahead of expectations. We increase our earnings estimates and price target and maintain our Buy rating," he said in a note.
Canaccord upgraded the consumer products company Colgate Palmolive (CL-N) shares to "hold" from "sell," after a pullback from its March highs. Canaccord said China-related issues have been resolved and that Colgate is now attractive as a defensive play.
With files from Bloomberg News