Thursday's analyst upgrades and downgrades

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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.

The fourth-quarter 2015 results were "a step back" for Rogers Communications Inc. (RCI.B-T, RCI-N), said Canaccord Genuity analyst Aravinda Galappatthige.

On Wednesday, the communications and media company reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $1.226-billion, below the analyst's estimate of $1.273-billion and the consensus projection of $1.260-billion. It was a drop of 0.6 per cent year over year. Adjusted earnings per share (EPS) of 64 cents also missed both Mr. Galappatthige's estimate (70 cents) and the consensus (69 cents), and represented a 5-cent drop from the same period in 2014.

"The company provided guidance for 2016, which in our view was slightly below expectations," Mr. Galappatthige said. "Rogers expects 1-3 per cent revenue, EBITDA and free cash flow (FCF) growth in 2016. Our and consensus' 2016 EBITDA projections prior to [Wednesday's] release were aimed at the high end of this range. However, FCF guidance of $1.7-billion (1- to 3-per-cent growth) was above our pre-release forecast of $1.6-billion, we suspect due to lower-than-expected cash taxes."

Mr. Galappatthige called the company's decision to halt dividend growth in 2016 a "surprise" and a "key negative."

"Rogers opted not to raise its dividend this year versus the broad expectation of another 5-per-cent hike," he said. "This was a surprise, particularly considering the fact that the dividend payout ratio is projected to be 58 per cent in 2016. We suspect this was mainly due to Rogers' leverage ratio of 3.1x (net debt/last 12 months EBITDA), which is well ahead of its target of 2.5x and its peers who are closer to 2.5x. Our thought is that with potentially another spectrum auction on the horizon (600 MHz likely in 2017), the company was required to make a more tangible effort toward debt reduction. Given the significance of dividend growth to most Canadian investors, this could result in some degree of re-rating in terms of valuations."

Mr. Galappatthige lowered his EBITDA and EPS forecasts for 2016 to $5.093-billion and $2.81 from $5.204-billion and $2.88, respectively. His FCF per share estimate did rise to $3.29 from $3.06.

"An area we are closely watching is capex intensity," he said. "Cable capex intensity is at peak levels at 30 per cent in 2015, lifted by its investments in Internet Protocol television (IPTV), further enhancements to its legacy NextBox platform, etc. However, 2016 guidance suggests that cable capex is unlikely to rise. Furthermore, considering that most Canadian cable companies have capex/sales at levels closer to 20 per cent (U.S. cablecos are even lower), one anticipates that Rogers Cable should be able to reduce its capex post-2016. This, in turn, would release material amounts of FCF and ensure that even low single-digit EBITDA growth can translate to high single-digit FCF growth."

Maintaining his "hold" rating, he lowered his target price for the stock by a loonie to $50. The analyst average target price is $52.14, according to Bloomberg.

Elsewhere, Cormark Securities analyst David McFadgen downgraded his rating to "market perform" from "buy" and lowered his target price to $53 from $58.

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The first-quarter 2016 results from CGI Group Inc. (GIB.A-T, GIB-N) were "solid" and bring "better visibility for growth," according to BMO Nesbitt Burns analyst Thanos Moschopoulos.

On Wednesday, the Montreal-based information technology company reported quarterly revenues of $2.68-billion, a decline of 2 per cent year over year but ahead of the consensus projection of $2.65-billion. Adjusted earnings per share of 84 cents topped the consensus of 82 cents.

"We estimate that revenues for the Logica business were close to flat on a year-over-year constant currency basis, with healthy growth in France, the U.K. and [Asia-Pacifc] offset by year-over-year declines in the Nordics and the rest of Europe," said Mr. Moschopoulos. "Canadian revenues were flat year over year and up quarter over quarter, which was the region's best performance in several quarters, while the U.S. was down 7 per cent year over year due to a significant year-over-year and quarter-over-quarter decline in U.S. defence revenues."

"The adjusted EBIT margin was 14.3 per cent, down from 15.1 per cent in Q4/15 (which had been helped by seasonality) but up from 14.0 per cent in Q3/15. The book to bill was strong, at 1.19:1 – with the strength being broad-based across the regions, and with an unusually high mix of new business relative to contract extensions and renewals (new business represented 58 per cent of total bookings). Management attributed the bookings strength to digital, cyber security, analytics and high-end consulting, with particular strength from the financial services vertical. Management said that they are actively exploring M&A opportunities, and are open to considering smaller tuck-in deals as well as larger, transformational deals.

In response to the results, Mr. Moschopoulos bumped up his forward financial estimates slightly and raised his target price for the stock to $63 from $59. The analyst average target price is $61.19, according to Bloomberg.

"While this represented another quarter of year-over-year revenue declines, the quarter-over-quarter trends seem encouraging across most parts of the business – save for U.S. Federal, which experienced an unexpected decline," he said. "Coupled with the robust bookings performance, the results provided us with incremental confidence that CGI is on a path to return to organic revenue growth in the coming months."

He maintained an "outperform" rating.

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Though Desjardins Securities analyst Gary Ho views the fourth-quarter results of AGF Management Ltd. (AGF.B-T) as "mixed to slightly positive," he lowered his target price for the investment management company.

"Adjusted EPS was in line; however, [wealth management] EBITDA was below our forecast. Institutional net outflows were a surprise following a few quarters of stable net flows," said Mr. Ho. "That said, retail net outflows were better than expected, and we are encouraged by the turnaround momentum despite recent volatile market conditions."

AGF reported adjusted earnings per share of 13 cents, which was in line with Mr. Ho's projection as well as the consensus. Adjusted wealth management EBITDA ($21-million) fell below his estimate, while retail net outflows ($249-million) were "better than expected."

"Management commented that despite the past two volatile months, retail net outflows are 21 per cent lower year-to-date, which is encouraging in our view," the analyst said. "The key driver, we believe, is improved fund performance, which is something we will keep a close eye on. Management also expects to close its infrastructure fund imminently. Offsetting these, it had larger-than-expected institutional net outflows (mostly emerging-market strategies)."

In reaction to "volatile market conditions," Mr. Ho lowered his estimates to reflect lower assets under management (AUM) levels. His EPS estimates for 2016 and 2017 fell to 45 cents and 48 cents from 50 cents and 54 cents, respectively. His EBITDA projections dropped to $78.3-million and $80.2-million from $83.4-million and $86.6-million, respectively.

Keeping his "hold" rating, the analyst lowered his target price for the stock to $5 from $5.75. The analyst average is $5.05.

"For us to be more constructive, we would like to see: (1) consistent short-term fund performance, which should improve medium/long-term performance numbers, (2) breakeven/positive net flows, and/or (3) closure with the CRA tax audits," he said.

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CIBC World Markets analyst Mark Petrie expects a slower start to 2016 for Gildan Activewear Inc. (GIL-N, GIL-T)

"We are reducing our earnings estimates for Gildan in 2016 based on channel checks which suggest more aggressive price promotions and choppy volume growth in the Printwear channel," said Mr. Petrie. "We have also further moderated our revenue forecast for the Branded segment based on a more conservative view on sell-through (weather) and somewhat greater impact from the company's on-going plans to exit certain low-margin businesses."

Mr. Petrie lowered his 2016 earnings per share forecast for the Montreal-based company to $1.73 (U.S.) from $1.85, which he noted implies "20-per-cent growth from a somewhat challenged 2015." He introduced a 2017 EPS projection of $2.01, which would be 17-per-cent growth "support by 8-per-cent revenue growth, along with modest gross margin percentage and opex leverage."

"In addition to attractive earnings growth, the company will see capex requirements moderate over the next two years, and we expect to see free cash flow climb to the range of $350- to $400-million in 2016 and 2017," the analyst said. "Gildan will perpetually invest in its physical plant, so we don't expect it will ever be in 'harvest mode,' but this flexibility will afford it opportunities for selective investment, acquisitions to diversify and strengthen the business, and lastly, returning cash to shareholders through dividends or buybacks."

Maintaining his "sector outperformer" rating for the stock, he lowered his price target to $33 (U.S.) from $37. The analyst consensus is $34.89, according to Thomson Reuters.

"Though the outlook for 2016, particularly the first half, is more challenged than we had previously built into our forecasts, we believe the company has an attractive long-term growth horizon, and is well-positioned to deliver double-digit earnings growth for many years," he said.

"The past volatility in Gildan's share price is well understood, and past issues have surfaced from the occurrence from one or more of three main factors – hiccups in manufacturing ramp-ups; wild swings in cotton pricing; U.S. economic recession. In our view, each of these factors lines up today, though the growing concerns of slower U.S. economic growth does suggest there could be some risk of slower volumes in the Printwear channel (aside from short-term de-stocking)."

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Facebook Inc. (FB-Q) is "winning over even more friends," said RBC Dominion Securities analyst Mark Mahaney after the tech giant reported "impressive" fourth-quarter results.

The social media company reported revenue of $5.84-billion (U.S.), an increase of 52 per cent year over year and "solidly" ahead of the analyst's estimate of $5.44-billion and the consensus projection of $5.37-billion. Mr. Mahaney pointed to growth in the advertising revenue segment as a "key number," rising 66 per cent year over year excluding foreign exchange.

"Facebook showed another strong quarter of revenue growth, driven by advertising, especially on mobile," he said. "These growth rates are intrinsically very impressive."

Mr. Mahaney raised his non-GAAP earnings per share estimates for 2016 and 2017 to $3.38 and $4.65 from $3.05 and $4.11, respectively. They represent increases of 11 per cent and 13 per cent.

"Facebook continues to generate very high and very profitable growth," he said. "An extremely rare combination, in our view. And we see in FB plenty of strong, secular platform growth ahead. In part because FB management is correctly prioritizing the user experience while developing better solutions for advertisers. And in part because FB is effectively investing against several material near/medium/long-term greenfield opportunities that we have detailed ... video ads, Instagram monetization, messaging platforms, and virtual reality."

Maintaining his "outperform" rating, he raised his target price to $160 (U.S.) from $130. The analyst average is $132.07.

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In other analyst actions:

Chesapeake Energy Corp. (CHK-N) was downgraded to "hold" from "buy" at Wunderlich by equity analyst Jason Wangler. The target price is $4 (U.S.) per share.

Citrix Systems Inc. (CTXS-Q) was raised to "market perform" from "market underperform" at JMP Securities by equity analyst Patrick Walravens.

FirstMerit Corp. (FMER-Q) was raised to "buy" from "hold" at Sandler O'Neill by equity analyst R Scott Siefers. The 12-month target price is $24.78 (U.S.) per share.

Halliburton Co. (HAL-N) was raised to "buy" from "accumulate" at KLR Group by equity analyst Darren Gacicia. The target price is $44 (U.S.) per share.

ServiceNow Inc. (NOW-N) was downgraded to "neutral" from "buy" at Mizuho Securities USA by equity analyst Abhey Lamba. The 12-month target price is $65 (U.S.) per share.

Norfolk Southern Corp. (NSC-N) was raised to "market perform" from "market underperform" at Avondale Partners by equity analyst Donald Broughton. The 18-month target price is $65 (U.S.) per share.

Philip Morris International Inc. (PM-N) was rated new "neutral" at UBS by equity analyst Carl Walton. The 12-month target price is $86.30 (U.S.) per share.

QUALCOMM Inc. (QCOM-Q) was downgraded to "market perform" from "outperform" at William Blair by equity analyst Anil Doradla.

Rockwell Automation Inc. (ROK-N) was downgraded to "underperform" from "market perform" at Bernstein by equity analyst Steven Winoker. The 12-month target price is $81 (U.S.) per share.

United Rentals Inc. (URI-N) was downgraded to "neutral" from "buy" at UBS by equity analyst Steven Fisher. The 12-month target price is $56 (U.S.) per share.

Whiting Petroleum Corp. (WLL-N) was downgraded to "hold" from "buy" at Wunderlich by equity analyst Jason Wangler. The target price is $7 (U.S.) per share.

With files from Bloomberg News