Inside the Market's roundup of some of today's key analyst actions
In spite of the turmoil Bombardier Inc. (BBD.A-T;BBD.B-T) has been facing overseas as Swedish-unit executives face allegations of bribery, Desjardins Securities is upgrading its rating to "buy" from "hold," thanks to an "attractive" risk-reward ratio that could see the stock have a potential return of 33 per cent.
"While we do not see any short-term catalysts and still note some risks, we expect a gradual re-rating of the shares as investors gain confidence in the company, potentially lifting the stock close to the $5 level by 2020," wrote analysts Benoit Poirier and Charles Perron-Piché. "Our conviction is also supported by the absence of short-term hype about future C Series orders, setting expectations lower, in our view."
The Desjardins analysts had been cautious about the transportation manufacturer for nearly a year, waiting on management to deliver on promises and for more details on the speed of its C Series and Global 7000 programs.
"Despite an elevated risk profile due to uncertainty about future C Series orders and the recovery in the bizjet market, we are confident BBD will successfully navigate through this environment," they wrote.
Desjardins kept its $2.75 target on the stock. The analyst consensus price target is $2.12, according to Thomson Reuters data.
They chalked up the share price's recent weakness to a number of factors – on top of the bribery allegations, there have been several reports of hesitation around orders for its C Series aircraft – but Desjardins analysts are confident. Their reasons? Positive reviews of its jet airliners, numerous industry developments, the company's restructuring efforts, and a stronger balance sheet thanks to a $372.5-million contribution from the federal government, among other factors.
Raymond James is raising its target price for Bird Construction Inc. (BDT-T) to $11 from $10 after fourth-quarter revenues and construction profits came in stronger than anticipated.
"Bird's top-line of $431 million notably exceeded our projection by 4% while its gross margins came in at 6.4%, or 80 bps above our target," wrote analysts Frederic Bastien and Brian Martin.
"Offsetting these positives to some extent were higher-than-expected G&A expenses due to greater pursuit costs during the quarter."
The analyst consensus price target is $10.
The Raymond James analysts said they expect 2017 to see a further contraction in earnings, but that "promising signs are emerging across sectors.
"Our EPS estimate of $0.45 for the year continues to reflect the substantial reduction in Bird's high-margin industrial work, the higher costs to pursue large-scale institutional opportunities and the expected lag before any related project wins hit the P&L," they wrote. "What weighs more heavily into our analysis at this point, however, is the momentum building for the firm in Canada's P3 (public-private partnership) sector. Bird is notably batting 2 for 2 this year with contract wins for the Royal Columbian Hospital redevelopment and the Hamilton Biosolids project."
After "disappointing" fourth-quarter results that came in below analyst consensus, Canaccord Genuity is maintaining its "sell" rating and $1 (U.S.) target for Concordia International Corp. (CXRX-Q;CXR-T).
Analysts' consensus target for the stock over the next year is $8.04 (U.S.).
"While we had modestly tapered our estimates going into the quarter, we clearly did not capture the full burden of increased generic competition and pricing headwinds on Concordia's North American portfolio," wrote analysts Neil Maruoka and Matt Bottomley. "With continuing weakness in both of its businesses, we have substantially lowered our forecasts for next year, decreasing our top-line estimate to $679.8 million (from $795.4 million) and adjusted EBITDA to $360.9 million (from $465.2 million) based on management commentary."
The Canaccord team said they didn't see any near-term catalysts to help Concordia turn around. "Nonetheless, management may be able to stabilize the business into 2017. Given Concordia's high debt load and eroding performance, we currently see only a small amount of value in the equity of the company."
Canaccord updated its discounted-cash-flow valuation using a weighted-average-cost-of-capital rate of 11.1 per cent, down from 13.5 per cent, and a terminal growth rate of 2 per cent, from 4 per cent. This supported their continued target price of $1, "implying a negative return of 49.5% that continues to support our SELL recommendation."
RBC Dominion Securities has upgraded Barrick Gold Corp. (ABX-N;ABX-T) to "outperform" from "sector perform" as it improves its production and cost outlook for the mining company. Analysts expect Barrick shares to reap the benefit of strong free cash flow generation over the next two years, "placing the company in a solid position to pay down debt and advance its organic growth projects."
Stephen D. Walker and Melissa Oliphant said that for reasons including improved production and cost guidance, Barrick's 2016 reserve and resource update, its fourth-quarter performance, and RBC's upward revisions on copper, they upgraded Barrick's net asset value per share target by 19 per cent to $13.53 (U.S.), increasing their share price target to $23 (U.S.), from $19.
"Our price target (at our flat long-term gold price assumption of $1,300/oz) is based on unchanged multiples of 1.2x our net asset value and 18.0x our enterprise value/3-year average forward adjusted cash flow (equivalent to 11x our forward operating CF), in line with Barrick's North American large cap peers NEM, GG and AEM," the RBC analysts wrote. "We also continue to attribute significant value to the early-stage development projects including Pascua-Lama, Donlin Gold, Cerro Casale and Alturas, which we view as longer-dated call options on gold."
The analyst consensus target for Barrick is $20.18 (U.S.).
Stephen D. Walker and Melissa Oliphant of RBC also upgraded Goldcorp Inc. (GG-N;G-T) Thursday, commenting that the market is beginning to discount a successful turnaround and that the stock's share price pullback is offering more attractive returns.
"Incorporating year-end results, investor day data, and higher by-product credits has improved our estimates and we raise our price target to $17 U.S. (from $15) and upgrade the shares to Sector Perform (from Underperform). We expect to see q-o-q operating improvement in 2017, and as the company delivers on its guidance and production development, we expect the market to begin to discount this success," the analysts said.
The two analysts Thursday, however, downgraded Newmont Mining Corp. (NEM-N) to "sector perform" from "outperform" while cutting their price target to $38 (U.S.) from $43. "The benefits from the new Merian & Long Canyon mines have been priced-in and are in part offset by the maturing mines. While NEM is expected to generate significant free cash flow, we believe this is discounted in the share price and a growing cash position increases expectations of M&A," they commented.
Penn West Petroleum Ltd. (PWT-T) provided an improved outlook and increased production guidance with its quarterly results, resulting in an upgrade by TD Securities analyst Juan Jarrah.
The company announced fourth-quarter earnings on Wednesday, with cash flow per share of $0.09 coming in ahead of a consensus forecast of $0.08, driven by strength in royalties and operating costs.
And Penn West raised its 2017 production guidance to 30.5 to 31.5 million barrels of oil equivalent per day, from a previous estimate of 27 to 29 million barrels.
That increase was the result of the company retaining some assets in the outer Cardium region and central Alberta it had initially planned to sell, Mr. Jarrah said.
"In our view, Penn West has come to the final stretch of a successful divestiture program and corporate transformation. Looking ahead, the focus now shifts towards execution on the right-sized asset base."
Mr. Jarrah upgraded Penn West's stock to "buy" from "hold" and raised his target price to $3 from $2.75. The analyst consensus target over the next year is $2.73.