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Vancouver-based First Majestic Silver has five operating mines in Mexico, including La Encantada.


Inside the Market's roundup of some of today's key analyst actions

Enerflex Ltd.'s (EFX-T) U.S. bookings are "attention-grabbing," according to Raymond James analyst Andrew Bradford.

Following the release of its third-quarter financial results on Wednesday, Mr. Bradford upgraded his rating for the stock of Calgary-based energy company to "outperform" from "market perform."

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"Our motivation comes from EFX's noticeably reduced cost structure – much of which has arisen from efficiency gains, not just headcount reductions," he said. "This evident in EFX's margin evolution for at least 2 to 3 quarters, signalling a measure of durability.

"We calculate EFX's dividend payout at 20 per cent of simple cash flow this year and 24 per cent of free cash flow (cash flow less maintenance capital). Absent a dividend increase, we estimate the ratios will drop to 16 per cent and 18 per cent in 2017 – their lowest since 2012. We're not forecasting it, but we think it's reasonable that EFX might bump its dividend to about 38 cents next year."

Enerflex reported quarterly earnings before interest, taxes, depreciation and amortization (EBITDA) of $48-million, topping the consensus projection. of $45-million.

"Without a doubt the story for EFX's quarter will be the U.S. bookings figure ($320-million – up from $102-million last year and $88-million sequentially)," said Mr. Bradford. "This is the highest U.S. bookings figure we've ever seen from EFX and alone represents at least $45-million of incremental EBIT and EBITDA and probably $30-million more than we were expecting – this forms a portion for the basis in our now-higher estimates. EFX offers that the large jump in orders originated in liquids rich plays. The bookings were sufficiently high that we doubt it's repeatable. That said, it does indicate that demand has been pent-up through the downturn, so inasmuch as 3Q bookings were unusually high, prior quarter bookings were also unusually low."

"While some investors will likely centre their attention on U.S. bookings, we were impressed with margin capture in the quarter in all segments, but particularly in the Rest of World segment. Total ROW revenue was sequentially lower, but rental revenue was sequentially higher. Rental revenue generates higher cash margins and higher economic margin – at least in the contract compression context. The ROW EBIT margin was 18 per cent in 3Q, up from 16 per cent in 2Q and 13 per cent year over year."

Mr. Bradford added its Canadian and international bookings and revenue were largely in line with his expectations. He raised his 2017 and 2018 EBITDA projections to $230-million and $260-million, respectively, from $196-million and $230-million.

Mr. Bradford raised his target price for the stock to $17.50 from $14.75. The analyst consensus is $16.92, according to Thomson Reuters.

Elsewhere, the stock was downgraded to "buy" from "strong buy" at Industrial Alliance by analyst Elias Foscolos. His target stayed at $17.50.

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First Majestic Silver Corp.'s (FR-T) execution is under the microscope, said BMO Nesbitt Burns analyst Jessica Fung.

Though she warned volatility remains for the stock due to its leverage to silver and Mexico, she upgraded the stock to "market perform."

"We are upgrading FR to Market Perform with a $14 target price after a 47-per-cent pull-back in the share price since Q2 earnings, and despite the 15-per-cent rally [Wednesday] post-U.S. election driven by FR's 100-per-cent exposure to MXN costs. Going forward, investors should focus on management's execution of its recapitalization program."

She added: "FR continues to demonstrate some of the highest NAV [net asset value] and earnings sensitivity to changes in commodity and FX prices near term. However, we also note that FR's sustaining margins are expected to stabilize next year even as capital expenditures double. FR's balance sheet is strong, like most of the silver space after the run-up in metal prices, with $122-million in cash and $57-million in debt at end-Q3."

On Wednesday, First Majestic reported third-quarter earnings per share of 6 cents, in line with the consensus and a penny below Ms. Fung's projection.

"In [the second half of 2016], Management increased its capital and exploration budget by $21-million to $88-million, but as of Q3, FR has only spent half of this higher figure," she said. "We expect FR will complete these additional capital exploration projects in 2017, with Q4 capex only slightly higher than Q3. We continue to forecast a near-doubling of capex to $116-million next year assuming silver prices remain at least at current levels ($18+). In early 2017, FR is expected to release updated technical reports for Del Toro, La Parilla and San Martin, which should provide greater clarity for these operations going forward."

Ms. Fung raised her target price for the stock to $14 from $10. Consensus is $21.88.


Primero Mining Corp. (P-T, PPP-N) is "not for the faint of heart," said Desjardins Securities analyst Michael Parkin, adding liquidity constraints boost its stock's volatility.

In the wake of the release of disappointing third-quarter results, Mr. Parkin downgraded his rating for Primero stock to "hold" from "buy."

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On Wednesday, the Toronto-based precious metals producer reported quarterly production of 44,700 GEO (gold equivalent ounces), below both the consensus projection of 52,700 GEO and Mr. Parkin's estimate of 50,200. Total cash costs were $887 (U.S.) per GEO, higher than the consensus ($812) and the analyst ($816).

"Cash costs were impacted by a $10-million bonus paid to San Dimas employees, who are seeking higher compensation and continuing to hamper mine performance through labour unrest—we expect that this could result in further labour disruptions into 1Q17 when the contract with the union is set to be renegotiated," said Mr. Parkin.

Due to the "poor" operating performance, Primero reported cash flow per share of 3 cents, well below the consensus of 10 cents and Mr. Parkin's estimate of 9 cents.

As well as the weak financials, the company reduced its guidance for the fourth time in 2016. It now projects production of 170–190,000 GEO at total cash costs of $850–900 (U.S.) per GEO. Mr. Parkin lowered his forecast to 174,700 GEO at $863.

"Overall, we believe Primero's share price could be highly volatile due to the high-cost nature of the company and its strained liquidity over the coming months; however, the stock could outperform the peer group if the company executes on guidance over two consecutive quarters," he said.

Mr. Parkin lowered his target price for the stock to $1.30 from $2.70. Consensus is $2.99.

At the same time, CIBC World Markets analyst Jeff Killeen lowered his rating for the stock to "sector underperformer" from "sector performer," citing "the continuing operational difficulties at San Dimas and the negative outlook for the company's balance sheet with the revolver repayment in Q2/17."

"Whilst a marginal re-rating may occur if P can resolve the tax issue in Mexico, we think Primero will underperform its peers until operations improve at San Dimas and the revolver can be refinanced," he said.

He reduced his target to $1.75 from $3.

The stock was downgraded to "hold" from "buy" at TD Securities by analyst Steven Green. His target price fell to $1.65 per share from $3.25.

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Following Daniel Ortega's landslide re-election victory to remain Nicaragua's leader, Canaccord Genuity analyst David Galison upgraded his rating for Polaris Infrastructure Inc. (PIF-T).

Moving his rating to "buy" from "speculative buy," Mr. Galison said Ortega's win reduces the risk associated with its San Jacinto project.

"Should President Ortega have lost the election we believed that there was a risk that the company would not make further investments into the Binary Unit and other options to expand productive capacity," he said.

On Tuesday, Polaris, a Toronto-based renewable energy company, reported third-quarter adjusted earnings before interest, taxes, depreciation and amortization of $11.8-million (U.S.), topping both Mr. Galison's projection ($10.8-million) and the consensus ($10.5-million). Funds from operations of $5-million also exceeded his estimate ($3.6-million).

"The better results compared to our estimate was due to lower than expected operating costs as well as higher than expected contribution from the newly connected SJ9-4 and SJ6-3 wells [at San Jacinto]," he said.

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The EBITDA from San Jacinto rose to $11.8-million, compared to $9.6-million in the previous quarter and $9.8-million at the same point in 2015, due largely to higher production from the two newly connected wells.

Mr. Galison raised his target price for the stock to $20 from $18.50. Consensus is $21.13.

"We expect that as management continues to execute and gain investor confidence we believe the valuation gap will begin to close to more normalized levels," he said.


Despite a "solid" beat with its third-quarter results, Raymond James analyst Kenric Tyghe downgraded Great Canadian Gaming Corp. (GC-T) to "market perform" from "outperform."

"While we recognize the option value of the various RFPs [request for proposals] related to the OLG's Modernization could be material, pricing these options is at best premature at this juncture and as such (based on earnings power through 2017, and caution on River Rock's rebound) we believe that Great Canadian is near fully valued," he said.

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The Coquitlam, B.C.-based company reported quarterly revenue of $151.2-million, topping both the consensus of $142.9-million and Mr. Tyghe's projection of $140.2-million. Mr. Tyghe pointed to "markedly better than expected performance" from the majority of its properties. With the exception of its River Rock's locale, where gaming revenue dropped 2.7 per cent, revenue and EBITDA rose across the board for the quarter.

Adjusted EBITDA of $62.9-million also exceeded the consensus of $55.8-million. Earnings per share of 45 cents topped the Street's expectation by 7 cents.

"The beat was largely driven by the strong contribution from the acquired Shorelines and Atlantic casinos which more than offset (expected) continued weakness at the flagship River Rock casino," the analyst said. "The OLG Modernization continues to gather momentum with a slew of bundles (on which Great Canadian has either been pre-qualified to bid on or has already bid on), expected to see an announcement of the successful bidder in the next 12 months. The bundles include: Southwest bundle by early 2017, the Ottawa bundle by the spring of 2017, the Greater Toronto area gaming bundle by late summer of 2017 and the West GTA bundle by the fall of 2017."

Mr. Tyghe maintained his target price of $25 per share. Consensus is $25.92.


Resuming a more "constructive" stance on Rocky Mountain Dealerships Inc. (RME-T), Raymond James analyst Ben Cherniavsky upgraded his rating for the stock to "outperform" from "market perform," noting he'd been "neutral to negative on the story for over three years."

"While its operational turnaround is not 100 per cent complete and some end market headwinds still linger, we have seen enough recent progress on costs, inventories, and the balance sheet to feel better about the company's future and the stock's risk-return profile," said Mr. Cherniavksy. "Returning to our boxing analogy, we award Rocky a TKO after enduring a long and bloody fight."

On Tuesday, the Calgary-based company reported third-quarter earnings per share of 34 cents, ahead of the analyst's projection and consensus of 28 cents.

"3Q16 New Unit sales fell 14 per cent year over year to $69-million, below our $80-million forecast and down to a level not seen since [the second quarter of 2010], despite the expanded footprint acquired since then," said Mr. Cherniavksy. "While this reflects the supply/demand imbalances that continue to plague the market, poor weather was also a material factor behind the top-line miss. Total revenues dropped 13 per cent to $223-million below our $260-million forecast, but management expects some of these foregone sales to be recovered in 4Q16.

"Better than expected gross margins offset some of Rocky's revenue shortfall. A more favourable sales mix (20.9 per cent aftermarket versus 18.8-per-cent estimate) and $1.3-million of extra OEM incentives (approximately 70 basis points) were the main drivers of the year-over-year margin lift. SG&A was also well below our estimate, driving the majority of the earnings 'beat.' The reduced costs reflect the company's ongoing restructuring efforts, lower sales volumes (less variable costs), and the gain on a financial derivative."

In reaction to the results, Mr. Cherniavksy raised his full-year EPS projections for 2016 and 2017 to 89 cents and $1, respectively, from 79 cents and 95 cents. He also raised his target price for the stock to $12 from $9.50, compared to the consensus of $10.28.

"We do not expect a V-shaped recovery in equipment demand for 2017," he said. "In fact, we assume markets will remain challenging for some time as the industry continues to work through idle machine capacity and unstable commodity prices. Nevertheless, we believe that Rocky has taken the necessary steps to pull through the trough (however long that takes) and come out the other side stronger. In our view, the stock has effectively been 'de-risked' while its valuation remains reasonable."

The stock was raised to "buy" from "hold" at Laurentian Bank by analyst John Chu. His target price is $11 per share.


Cervus Equipment Corp.'s (CVL-T) story has been "sufficiently re-disked" to warrant an upgrade, said Raymond James analyst Ben Cherniavksy.

He raised his rating for the Calgary-based company to "outperform" from "market perform."

"We note that Cervus' stock has fallen 19 per cent since our May. 14, 2-15 downgrade (versus a 2-per-cent decline for theTSX) while its forward price-to-earnings multiple has contracted by [approximately] 2.5 points (i.e. it's much 'cheaper!')," said Mr. Cherniavksy. "Over the same period of time, a successive pattern of quarterly 'misses' has lowered expectations to the point where 'beats' are more likely, as was the case for 3Q16 ... Importantly, internal fundamentals have also improved even though equipment demand has not. Restructuring efforts have effected reduced inventories, lower leverage, cost savings, and higher margins. In our view, this repositions Cervus well for an eventual market recovery and/or future M&A activity."

Cervus reported third-quarter adjusted earnings per share of 63 cents, ahead of the consensus of 42 cents and the analyst's projection of 39 cents.

"While one quarter does not make a trend, we are encouraged to see year-over-year improvements in the bottom line," he said.

Mr. Cherniavksy added: "A major issue that we have had with all dealers stocks for several years now has been the inflated state of inventories. Cervus, like many of its peers, finally appears to be addressing this issue, with inventories falling to a two year low and turns rising to a two year high ... The related free cash flow of $16-million has contributed to the aforementioned debt reduction. While more work remains to be done on inventories, we believe much of 'the heavy lifting' is complete—that is assuming end market demand does not take another leg down."

He raised his target price for the stock to $16 from $12.50. Consensus is $14.33.

"Although we have (rightfully) been quite cautious on this stock over the past 18 months, our long-term bias has remained generally positive," the analyst said. "Specifically, we have been — and remain — attracted to Cervus' diversified business platform, recurring revenue stream, consolidation opportunities, and suite of leading brands."

Elsewhere, CIBC World Markets analyst Jacob Bout upgraded his rating for the stock to "sector outperformer" from "sector performer" and increased his target price to $18 from $13.

Mr. Bout said: "Our upgrade is a function of improved earnings estimates reflecting: 1) concerns about losing agriculture equipment market share have eased, 2) cost-cutting initiatives are taking hold, 3) evidence of used equipment sales improving and better used equipment inventory management and 4) that structurally the outlook for Canadian agriculture remains robust (much better than the U.S.)."


TD Securities analyst Aaron Bilkoski raised his rating for Pine Cliff Energy Ltd. (PNE-T) based on a flatter production outlook and its current valuation.

On Wednesday, the Calgary-based oil and gas exploration and production company reported third-quarter production of 22,521 barrels of oil equivalent per day, topping the expectations of both Mr. Bilkoski (22,000 boe/d) and the consensus (22,100 boe/d).

"Given the negligible capital spend of only $1-million, this suggests that the decline rate is flatter than what we had been modelling," he said. "Ultimately, this equates to a business model that requires less capital than anticipated to maintain production and/or more free cash flow to rapidly reduce its currently high leverage."

"In the past, we had referenced Pine Cliff's year-over-year production decline forecast for 2017 (currently down 7 per cent year over). However, in hindsight, focusing too closely on absolute volumes may be too simplistic given its ability to reduce leverage through 2017. Based on $3.25/mcf AECO, we forecast that Pine Cliff can reduce net debt to only $46-million by year-end 2017 (from $98-million at year-end 2016 ). Not only does this equate to a comfortable year-end 2017 estimated debt-to-cash flow of 0.7 times, but it also translates into debt-adjusted production growth of 7 per cent year over year."

Mr. Bilkoski raised his rating for the stock to "buy" from "hold" and his target price to $1.35 from $1.20. Consensus is $1.39.

"Although we do not believe that PNE will spend sufficient cash flow (CF) to maintain absolute production, as it directs CF to debt-repayment, we find it instructive to play the 'what-if game,'" he said. "We estimate that PNE would need to spend $33-million to maintain production at 22,000 BOE/d. At this production level, we estimate that the business will generate $69-million in cash flow at $3.25/mcf AECO ($36-million in FCF after sustaining capex). This translates into a FCF yield of 13 per cent. Said another way, at AECO prices greater-than $2.20/mcf, the business should generate sufficient FCF to maintain flat production."


In other analyst actions:

Citing the "Donald effect," BMO Nesbitt Burns analyst John Kim lowered Ventas Inc. (VTR-N) to "underperform" from "market perform" with a $55 (U.S.) target (unchanged). Consensus is $71.46. Mr. Kim said: "Surprise President-Elect Trump has vowed to 'immediately deliver a full repeal of Obamacare' (ACA). While the logistics of this may be challenging, we view a major change in the ACA as unfavorable to hospital operators, and secondarily, medical office buildings. With high exposure to both as well as other tenant headwinds, we lower our rating."

BMO Nesbitt Burns analyst Fadi Chamoun downgraded CSX Corp. (CSX-Q) to "market perform" from "outperform" and raised his target to $35 (U.S.) from $34. Consensus is $32.30. He said: "Near-term pressures from an over-supplied trucking market remain elevated, economic tailwinds are expected to remain moderate, and the pace of cost savings is likely to decelerate versus 2016 levels. Given the recent run-up in valuation, we see that the risk/reward has become more balanced."

RBC analyst Ben Holton raised Alaris Royalty Corp. (AD-T) to "outperform" from "sector perform" with a target of $24.00 (unchanged). The analyst average is $24.95, according to Bloomberg

Boralex Inc. (BLX-T) was raised to "strong buy" from "buy" at Industrial Alliance by Jeremy Rosenfield. His target stayed $23. The average is $22.67.

Chesswood Group Ltd. (CHW-T) was downgraded to "market perform" from "buy" at Cormark Securities by analyst Jeff Fenwick. His target fell to $13.50 from $15. The average is $14.25.

Cormark Securities analyst Garett Ursu raised Gear Energy Ltd. (GXE-T) was raised to "buy" from "speculative buy." His target rose to $1.30 from $1.20, compared to the average of $1.08.

High Liner Foods Inc. (HLF-T) was downgraded to "hold" from "buy" by Beacon Securities analyst Douglas Cooper with a $23.50 target (from $31). The average is $23.38.

Scotia analyst Antony Zicha raised Russel Metals Inc. (RUS-T) was raised to "sector outperform" from "sector perform" with a $26 target (up from $21). The average is $24.17.

Sienna Senior Living Inc. (SIA-T) was raised to "outperform" from "sector perform" by RBC analyst Michael Smith with a target price of $18 (unchanged). The average is $18.04.

SEMAFO Inc. (SMF-T) was raised to "buy" from "hold" by TD Securities analyst Steven Green with a $7.50 target (unchanged). The average is $7.42.

Trican Well Service Ltd. (TCW-T) was upgraded by Raymond James' Andrew Bradford to "outperform" from "market perform." He raised his target to $4 from $3.60, versus the average of $3.70.

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