Inside the Market's roundup of some of today's key analyst actions
In a quarterly review of the precious metals sector, Canaccord Genuity analyst Tony Lesiak downgraded Asanko Gold Inc. (AKG-T) to "hold" from "speculative buy" based on recent share price performance.
Shares of Asanko have risen 45.32 per cent in the year to date. He moved his target price to $3.25 from $3, compared to an analyst consensus of $3.31.
On the sector as a whole, Mr. Lesiak said:
"Since our last forward curve update sector (February), NAV's were negatively impacted (6 per cent) by the strength in producer currencies (Canadian dollar up 5 per cent, Australian dollar up 6 per cent, Chilean peso up 6 per cent, Brazilian real up 10 per cent) and oil price (up 19 per cent) and their margin impacts. These headwinds were partly offset by the positive shift in the gold (up 2 per cent), silver (up 3 per cent) and copper (up 9 per cent) pricing. Our target prices were little changed on average for the group given rising target multiples on improving fundamentals for a few select names (Barrick Gold, Kinross Gold, Detour Gold, New Gold, Yamana Gold)."
He added: "In the context of prevailing forward curve pricing we see significantly less value among the North American gold equities at present than we did three months ago. The gold equities under coverage have exhibited 3:1 leverage during the upswing year to date, outperforming the gold price by 30 per cent. The senior sector's price/net asset value (NAV) multiple has risen from 0.65x in early January to 0.81x at present. In the previous 24 months the sector has traded in a range of 0.65x to 0.95x. While valuation appears to be modestly better for the mid-tiers at present, financial performance in Q1 reporting is expected to be superior for the seniors, with most showing sequential improvement, growing margins and free cash flow (FCF) yields. The market's current focus on liquidity and safety in the gold sector also favours the seniors. All the $2-billion-plus market capitalization companies under coverage are expected to be FCF positive (average 4.7-per-cent yield) in 2016 as the focus shifts from growth to margin. We are currently seeing producer margins benefit fully from rising top lines as costs remain in check, unlike the 2007 to 2011 period."
Mr. Lesiak tweaked his target prices for several stocks. Those changes included:
- Franco-Nevada Corp. (FNV-T, hold) to $80 from $82. Consensus: $81.40.
- Osisko Gold Royalties Ltd. (OR-T, buy) to $19 from $21. Consensus: $18.11.
- Torex Gold Resources Inc. (TXG-T, speculative buy) to $2.25 from $2. Consensus: $2.26.
- Barrick Gold Corp. (ABX-T, buy) to $22 from $21.50. Consensus: $18.13.
- Agnico Eagle Mines Ltd. (AEM-T, buy) to $60 from $63. Consensus: $50.94.
- Alamos Gold Inc. (AGI-T, buy) to $8.50 from $8. Consensus: $7.69.
- Argonaut Gold Inc. (AR-T, buy) to $2.50 from $2.75. Consensus: $2.63.
- Detour Gold Corp. (DGC-T, buy) to $25.50 from $27. Consensus: $22.81.
- Eldorado Gold Corp. (ELD-T, hold) to $4.50 from $4.75. Consensus: $5.49.
- IAMGOLD Corp. (IMG-T, hold) to $3.40 from $3.75. Consensus: $3.51.
- Kinross Gold Corp. (K-T, buy) to $6 from $6.25. Consensus: $5.77.
- New Gold Inc. (NGD-T, hold) to $5.25 from $4.75. Consensus: $5.24.
- Richmont Mines Inc. (RIC-T, buy) to $9 from $8.25. Consensus: $7.90.
- Sandstorm Gold Ltd. (SSL-T, buy) to $5.25 from $5. Consensus: $5.54.
- Tahoe Resources Inc. (THO-T, buy) to $17 from $18. Consensus: $17.60.
"While we have also seen the yawning valuation gaps close for ABX, YRI, K, BTO since the beginning of the year, opportunity remains," said Mr. Lesiak. "Our two Focus List picks for the space are currently Agnico Eagle and Richmont. While neither are deep value, we see a strong catalyst runway and significant potential to backfill value with the drill bit. For torque to the gold price and re-rating potential we currently recommend Kinross and B2Gold. Overall, we believe sector valuations could improve further with improving sector fundamentals (margins, alignment, capital allocation) and continued generalist appeal and forecast an average 20-per-cent return for the group. A 10-per-cent increase in the gold price would on average lift our NAV's 27 per cent."
The base metals sector offers "significant" upside, according to Dundee Securities analyst Joseph Gallucci.
After updating his commodity price and foreign exchange forecast, Mr. Gallucci upgraded Capstone Mining Corp. (CS-T) to "buy" from "neutral" and downgraded Copper Mountain Mining Corp. (CUM-T) to "sell" from "neutral."
"Base metal prices (copper, zinc, lead) performed better than expected and as such we are modestly increasing our forecasts," the analyst said. "Hard coking coal prices finally moved in the right direction after over a two-year downtrend. We still don't believe the outlook for coal to be positive, but it is possible that coal has found its bottom. DCM's commodity preferences remain zinc > copper > nickel > coal (bulks). With the demand outlook still lackluster, supply constraints remain a key driver for base metal prices. Zinc remains in pole position to outperform as supply constraints, inventory drawdowns, and lower treatment charges will push zinc prices higher this year. The Canadian dollar has strengthened, which is not beneficial to Canadian producers."
On Capstone, Mr. Gallucci said: "We believe that at our current copper price valuation (and recent hedging program) they will not breach covenants in 2016. With the covenant risk fading, CS remains a pure call option on copper with no currency risk."
He maintained his 90-cent target price. Consensus is 80 cents.
On Copper Mountain, he said: "CUM is trading at trough multiples - as our view on the exchange rate has improved for the Canadian dollar, CUM's margins are negatively impacted."
He did not change his target price of 40 cents. Consensus is 83 cents.
Mr. Gallucci updated his target prices for the following stocks:
- Lundin Mining Corp. (LUN-T, buy) to $5.35 from $5.25. Consensus: $5.01.
- Teck Resources Ltd. (TCK.B-T, neutral) to $10 from $6. Consensus: $8.80.
- Atico Mining Corp. (ATY-X, neutral) to 35 cents from 30 cents. Consensus: 64 cents
- Nevsun Resources Ltd. (NSU-T, buy) to $5.90 from $5.50. Consensus: $4.66.
- Thompson Creek Metals Company Inc. (TCM-T, sell) to 20 cents from 10 cents. Consensus: $1.59.
Following its announcement of an "ambitious" capital spending strategy, CIBC World Markets analyst Mark Petrie called Whistler Blackcomb Holdings Inc. (WB-T) "a splashy investment."
On Tuesday, the company announced the Whistler Blackcomb Renaissance Long-Term Strategic Plan, which includes over $345-million in spending over three phases and is anchored by a "world-class" water park.
"The key takeaway is that this investment reduces WB's exposure to weather and increases potential for revenue per visit," said Mr. Petrie. "The net investment is less than half of the $345-million headline after backing out real estate development that in all likelihood will be sold off to a third party. The $90- to $100-million Phase 1 covers the water park and other new facilities, and will add significantly to annual visits (400,000 incremental versus 2.5-million total historically). We expect construction to start in 2017/18 and start producing earnings in 2019/20."
Mr. Petrie said he projects the plan to be worth $3 in NPV (net present value) per share.
Maintaining his "sector outperformer" rating, Mr. Petrie raised his target price to $31 from $28.
"We believe that WB's unmatched asset base leave it well-positioned to deliver attractive returns on future investment," he said. "Like other scarce, publicly-regulated assets, these are largely limited by capital, time, and approvals - not opportunity. With WB's investments growing the local economy, counterparties on its side, and a new MDA coming down the pike, we view a long, profitable growth path at WB."
"Whistler Blackcomb operates on an unique public resource, and leveraging this asset has been limited more by what regulations allow than opportunity. The business has proven resilient in tough years (a somewhat underappreciated quality until 2015), and there is a great degree of upside in the near term given the weak Canadian dollar and good weather, and the longer-term, with myriad accretive investment options. It is worth noting that while we are not changing our Q2 forecasts, conditions have improved since our last report in mid-February. We continue to value Whistler using a 12x EV/EBITDA multiple. For comparison, Vail Resorts Inc. (MTN-N) is trading at 12.0x July 2016 EBITDA and 10.9x July 2017. Given Whistler's higher margins, proven stability in poor conditions (and positive leverage in good conditions), and strong competitive position based on a weaker CAD, we remain comfortable at 12x and could see upside beyond that if favourable conditions continue or accelerate."
BMO Nesbitt Burns analyst Tim Long said he has a more "confident outlook" on Hewlett Packard Enterprise Co. (HPE-N) after recent meetings with the tech giant's management.
"Our takeaways are consistent with our positive views on the stock," said Mr. Long. "We are more confident in the cash flow rebound, and are impressed by the more aggressive stance on capital return. Looking at the businesses, we see several catalysts across the hardware segments. We believe growth will remain in servers and storage thanks in part to potential disruption at Dell/EMC and a better go to market in China. Networking has been the best division, and this should continue, driven by Aruba. We expect a slow and steady profit recovery from the Enterprise Services group."
Adding the meetings reaffirmed his positive thesis on the company coming out of its last earnings call, he expects "solid" execution to continue in the wake of its split into two smaller companies (HP Inc. and Hewlett Packard Enterprise) last November.
Keeping his "outperform" rating for the stock, Mr. Long raised his target price to $23 (U.S.) from $20. Consensus is $17.13.
"We are using a higher price-to-earnings multiple of 11x 2017 calendar year, up from 9-10x previously," he said. "This multiple reflects the average of the peer group of legacy hardware companies. Given our greater confidence in the cash flow and margin recovery, we believe a peer multiple is more appropriate."
With zinc remaining his preferred commodity over the next 12 months, RBC Dominion Securities analyst Sam Crittenden initiated coverage of Arizona Mining Inc. (AZ-T) with a "outperform" rating given the potential for its Taylor deposit in Arizona.
"The Taylor deposit has a sizable resource of 39.4 Mt at a relatively high grade of 11 per cent zinc equivalent (ZnEq) which places it in the top 20 per cent of zinc deposits globally for metal content," said Mr. Crittenden. "We believe the deposit would support a large scale underground mine, assuming infill drilling confirms grade continuity. Initial metallurgical testing indicates a clean concentrate could be produced using standard flotation and the geometry appears to support bulk underground mining."
He added: "We apply a speculative risk rating given the early stage nature of the project. Infill drilling would be required prove the continuity and grade of the deposit. Permitting is another key risk; however, the project could largely be built on patented mining claims (with an easier permitting process) and an underground operation would have a smaller environmental footprint."
Mr. Crittenden noted the company remains in the exploration stage of "the life cycle" of a mining company, but he can see further upside if the deposit continues to grow.
He set a price target of $1.10 for the stock, and he is currently the only analyst covering the company.
"We view Arizona as an attractive takeover candidate based on the scale of the deposit combined with a good jurisdiction and favourable commodity," he said. "The current valuation remains at a substantial discount to precedent transactions in the base metals space, despite the recent rally."
Acuity Brands Inc. (AYI-N) is "on the right track," said Canaccord Genuity analyst Jed Dorsheimer following the release of the company's second-quarter earnings.
The Atlanta-based energy company reported revenue of $777.8-million (U.S.), beating both the analyst's projection of $747.6-million and the consensus of $752.3-million. Pro forma earnings per share of $1.80 also topped Mr. Dorsheimer ($1.52) and the consensus ($1.57).
He pointed to tailwinds in "almost all" channels and each vertical for the earnings result.
"Recent acquisitions and consequent non-GAAP adjustments (new stock-based comp, acquisition-related fees, and amortization of acquired intangibles) add a small layer of complexity to the company's financials," the analyst said. "This change may have been the cause of the gap between consensus and actual earnings figures, in our opinion. On a GAAP basis, EPS of $1.49 compared to our estimate of $1.40 and consensus of $1.42 -- still a healthy beat."
He kept his "buy" rating while raising his target price to $269 from $247. The analyst average is $258.22, according to Bloomberg.
"Although we harbored concerns that Acuity's integration of Juno may have elevated the company's risk profile heading into the quarter, Acuity's FQ2 was exceptional in every area," he said. "Although these risks still have the possibility of manifesting in future quarters, we maintain our long-term bullish stance on the name and believe any future near-term fluctuations can be mostly dismissed as the company ramps its tiered solution approach. We continue to believe that Acuity's tiered solutions sales will grow at a rate similar to that of the company's LED sales in the past five years, which would result in meaningful upside to sales, gross margins, operating margins and EPS."
Elsewhere, EVA Dimensions analyst Timothy Stanish downgraded his rating for the stock to "hold" from "overweight."
In other analyst actions:
Allergan PLC (AGN-N) was downgraded to "neutral" from "positive" at Susquehanna by equity analyst Andrew Finkelstein. The 12-month target price is $275 (U.S.) per share.
Alexion Pharmaceuticals Inc (ALXN-Q) was rated new "market perform" at BMO Capital Markets by equity analyst Ian Somaiya. The 12-month target price is $165 (U.S.) per share.
BB&T Corp (BBT-N) was downgraded to "outperform" from "strong buy" at Raymond James by equity analyst Michael Rose. The 12-month target price is $38 (U.S.) per share.
BioMarin Pharmaceutical Inc (BMRN-Q) was rated new "outperform" at BMO Capital Markets by equity analyst Ian Somaiya. The 12-month target price is $99 (U.S.) per share.
Cracker Barrel Old Country Store Inc (CBRL-Q) was raised to "buy" from "neutral" at Longbow Research by equity analyst Alton Stump. The target price is $187 (U.S.) per share.
Coach Inc (COH-N) was raised to "outperform" from "market perform" at William Blair by equity analyst Amy Noblin.
Capstone Mining Corp (CS-T) was raised to "buy" from "neutral" at Dundee by equity analyst Joseph Gallucci. The 12-month target price is 90 cents (Canadian) per share.
Copper Mountain Mining Corp (CUM-T) was downgraded to "sell" from "neutral" at Dundee by equity analyst Joseph Gallucci. The 12-month target price is 40 cents (Canadian) per share.
Delphi Energy Corp (DEE-T) was rated new "buy" at Beacon Secs by equity analyst Kirk Wilson. The 12-month target price is $1.60 (Canadian) per share.
Eagle Energy Inc (EGL-T) was downgraded to "hold" from "buy" at Paradigm Capital by equity analyst Ian Macqueen. The target price is 75 cents (Canadian) per share.
EMC Corp (EMC-N) was downgraded to "outperform" from "strong buy" at Raymond James by equity analyst Brian Alexander. The 12-month target price is $29 (U.S.) per share.
Gran Tierra Energy Inc(GTE-T) was raised to "buy" from "hold" at Paradigm Capital by equity analyst Ian Macqueen. The target price is $3.75 (Canadian) per share.
Harley-Davidson Inc (HOG-N) was downgraded to "market perform" from "outperform" at William Blair by equity analyst Sharon Zackfia.
Intel Corp (INTC-Q) was rated new "buy" at Brean Capital by equity analyst Mike Burton. The 12-month target price is $36 (U.S.) per share.
National Bank of Canada (NA-T) was raised to "top pick" from "buy" at Cormark Securities by equity analyst Meny Grauman. The 12-month target price is $45 (Canadian) per share.
TELUS Corp (T-T) was downgraded to "sector perform" from "outperform" at National Bank by equity analyst Adam Shine. The 12-month target price is $42 (Canadian) per share.
Valero Energy Partners LP (VLO-N) was rated new "buy" at Drexel Hamilton by equity analyst John Ragozzino. The 12-month target price is $60 (U.S.) per share.
Verizon Communications Inc (VZ-N) was downgraded to "hold" from "buy" at Jefferies by equity analyst Michael Mccormack. The 12-month target price is $53 (U.S.) per share. It was also downgraded to "market perform" from "outperform" at Bernstein by equity analyst Paul De Sa with a 12-month target price of $55 per share.
With files from Bloomberg News