Inside the Market's roundup of some of today's key analyst actions. This file will be updated during the trading day. For breaking analyst actions prior to market open every day, read our Before the Bell morning report.
Canadian bank stocks should please investors over the coming year but stock selection will be key, said RBC Dominion Securities analyst Darko Mihelic in initiating coverage on the sector today.
Mr. Mihelic forecasts total returns ranging from 9 per cent to 17 per cent for the Canadian banks, and sees three as the best bets right now: Toronto Dominion Bank, Bank of Nova Scotia and Bank of Montreal.
"Banks are trading in a relatively tight valuation band, and each bank faces unique headwinds that if worked through (or not) could largely differentiate performance in the upcoming year," he said.
As a group, the Canadian banks should see modest median earnings per share growth of 2 per cent in 2014, but this should rebound to 7 per cent in 2015, according to Mr. Mihelic. Meanwhile, the Canadian banks are poised to share more of their cash with shareholders, with dividend growth rising by between 5 per cent to 12 per cent in 2014 and by between 4 per cent to 9 per cent in 2015.
Current bank valuations reflect this modest expected growth in earnings for this year, trading at a median forward price-to-earnings multiple of 11.0 times versus a 10-year average of 11.4 times, he noted.
Part of this can be explained by the challenging conditions they will face in Canadian retail banking this year, as consumer loan growth continues to decelerate. Banks will be more focused than ever to drive efficiencies and rein in costs to maintain positive operating leverage.
It's their businesses outside of Canadian retail banking that will differentiate earnings growth rates, Mr. Mihelic said.
"Banks' wealth businesses are well positioned for the evolving regulatory environment, and banks have considerably de-risked their capital markets businesses, which should provide additional earnings growth and stability as economic growth picks up. Banks with exposure to geographies outside of Canada may benefit from stronger relative economic growth (although this theme has been challenged recently), and in the case of banks with exposure to U.S. retail banking, improved credit quality should help support earnings growth in 2014," he said.
In addition to regular dividend increases, many of the banks are also likely to buy back stock, he predicted. "Capital is more than
sufficient for the big six banks that we cover, with common equity Tier 1 ratios ranging between 8.7–9.9 per cent compared to an 8 per cent minimum threshold. In our view, banks are well positioned to make use of excess capital through buybacks and cash acquisitions, which will help EPS growth in 2014/2015."
Bank of Montreal, Bank of Nova Scotia and Toronto Dominion Bank were all given "outperform" ratings, with price targets of $76, $73, and $113, respectively.
He initiated coverage on Canadian Imperial Bank of Commerce, National Bank, Canadian Western Bank and Laurentian Bank with "sector perform" ratings, with price targets of $97, $93, $40, and $47, respectively.
Mr. Mihelic does not cover his own bank, and his median forecasts for the banking group exclude RBC.
RBC Dominion Securities also initiated coverage on the Canadian life insurance companies today.
Great-West Lifeco Inc. was rated "sector perform" with a $33 price target. Industrial Alliance Insurance and Financial Services Inc. got a "sector perform" rating with a $48 price target. Manulife Financial Corp. was given an "outperform" rating and $23 price target. And Sun life Financial Inc. a "sector perform" rating and $36 price target.
RBC Dominion Securities analyst Mark Sue has boosted his price target on BlackBerry Ltd., believing that the introduction of new BlackBerry 10 smartphones into emerging markets will help slow the company's cash burn rate.
Mr. Sue notes that the current operating environment remains challenging for BlackBerry, but near-term risk has been reduced thanks to its new Foxconn partnership. A five-year deal with Foxconn was struck in late December and will see the world's largest manufacturer of electronic products make products for BlackBerry at plants in Indonesia and Mexico.
"We believe new CEO (John) Chen's turnaround track record and his open-minded turnaround strategy are inspiring more investor confidence that BlackBerry's business may stabilize rather than continue to deteriorate," Mr. Sue said in a research note. "While the environment remains very difficult and near-term results aren't encouraging, we believe investors will now give management the benefit of the doubt in the near-term that BlackBerry may stabilize its business and reduce cash burn."
Mr. Sue now estimates a net cash position of $1.50 a share in two years, up from his prior forecast for 50 cents per share.
He maintained an "underperform" rating and raised his target to $6 (U.S.) from $5.
RBC Dominion Securities analyst Paul Treiber significantly boosted his price target on Sierra Wireless Inc. and reiterated an "outperform" rating, predicting significant growth over the next couple of years.
"Sierra, in our view, is well positioned to benefit from one of the largest secular growth opportunities in technology: the Internet of Things (IoT)," said Mr. Treiber in a research note.
The "Internet of Things" refers to technology that enables communication among physical objects via the Internet. Sierra Wireless provides wireless solutions for machine-to-machine (M2M) and mobile computing markets and offers products and services that connect people, their mobile computers and machines to wireless voice and data networks worldwide.
"We rate Sierra Wireless shares outperform on: 1) accelerating organic revenue growth on proliferating device connectivity; 2) expected strong operating leverage and EPS growth; and 3) reasonable valuation, at the low end of peers, despite Sierra's M2M leadership," Mr. Treiber said. "We see 2014 as the breakout year for connected cars, expect sustained industrial M2M demand, and see a rebound in European M2M growth."
Mr. Treiber raised his price target to $28 (U.S.) from $20.
In other analyst actions:
Oppenheimer downgraded General Electric to a "perform" rating from "outperform," believing the stock is fairly valued given the major transition the company is going through to hit CEO Jeff Immelt's goal of achieving 70 per cent of operating earnings from industrial businesses.
Goldman Sachs downgraded Joy Global to "sell" from "neutral" and reiterated a price target of $52 (U.S.).
Dundee Securities cut its price target on Colossus Minerals to 2 cents (Canadian) from 15 cents and reiterated a "sell" rating.
Evercore Partners upgraded Sirius XM Holdings to "overweight" from "equal weight" and boosted its price target by 60 cents to $4.50 (U.S.).
Jefferies cut its price target on Consolidated Edison to $46 (U.S.) from $49 and reiterated an "underperform" rating.
RBC Dominion Securities downgraded Micron Technology to "sector perform" from "outperform" and maintained a $19 (U.S.) price target.
Topeka Capital raised its price target on Amazon.com to $485 (U.S.) from $405 and maintained a "buy" rating.
For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities