Wednesday'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 during the trading day. For breaking analyst actions prior to market open every day, read our Before the Bell morning report.

Demand for U.S. housing has been surprisingly weak heading into the spring selling season, according to Credit Suisse, prompting the bank today to downgrade three of the largest homebuilders in the country.

PulteGroup Inc., Toll Brothers Inc. and William Lyon Homes were all downgraded to "neutral" from "outperform." Credit Suisse left its price targets unchanged for Pulte, at $20 (U.S.), and for Toll Brothers, at $39. It modestly raised its target on William Lyon Homes to $30 from $28 based on its above-average volume growth and low-cost land base.

In a report titled "The Underwhelming Spring Selling Season," Credit Suisse analysts led by Daniel Oppenheim said demand for homes has been weakening so far this year, which runs contrary to recent generally positive commentary from builders and the optimism reflected in the stock prices, which are trading on average at 1.5 times 2015 adjusted book value.

"Our monthly survey of real estate agents points to continued weakness in demand, with lower buyer traffic sequentially and year over year," the report stated. "Our February traffic index fell to 36 from 38 in January, and 65 in February 2013." It was the lowest reading for a February in its traffic survey since 2009.

"We expect that demand will be disappointing for the spring season in 2014. This will result in continued year/year declines in sales per community for homebuilders through at least the first half of 2014, which in turn will drive the need to increase incentives to generate sales, negatively impacting gross margin appreciation," it said.

Credit Suisse still expects housing orders to rise 10 per cent in 2014, and by 15 per cent in 2015. But that may not be enough to satisfy the market's lofty expectations.

"Builders' commentary has been generally positive heading into the spring season and the stocks have reflected this optimism. However, we believe that valuations are at risk given the soft demand we see in our monthly survey. We expect the stocks to reflect these observations as macro housing data and homebuilder orders and gross margins come in short of expectations. Historically, our buyer traffic index has demonstrated a strong ability to predict inflection points in stocks, and we think our February survey will continue this trend."

Shares in Pulte, Toll Brothers and William Lyon Homes are all down around 2 per cent in late morning trading.

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Another "perfect storm" is on the horizon for Fortress Paper Ltd., as the company's cash dries up while it faces the challenge of turning a profit at its Thurso mill after anti-dumping duties were imposed by the Chinese, warned RBC Dominion Securities analyst Paul C. Quinn.

He sliced his price target in half, from $3.50 (Canadian) to $1.75, and reiterated an "underperform-speculative risk" rating.

"The company's balance sheet continues to deteriorate while Fortress faces many uncertainties in the near term with China's final anti-dumping decision expected in April 2014 and large hardwood capacity adds ramping up," Mr. Quinn said in a research note.

Fortress had only $62-million of cash and cash equivalents at the end of the fourth quarter of last year, but has debt and other liabilities of $49-million coming due this year. Meanwhile, the company must spend $15.5-million through the end of next year to meet its production targets, Mr. Quinn noted.

The Thurso pulp mill is back up and running after a 10-week shutdown prompted by low spot prices for northern bleached hardwood kraft (NBHK) pulp and the preliminary Chinese duties. But Mr. Quinn has doubts it will soon turn a profit. "Given the current commodity dissolving pulp pricing, exchange rates, and the 13 per cent import duty, management expects Thurso to be breakeven in April. We have our doubts, noting that the company has never turned a profit at Thurso since its switch to dissolving pulp," he said.

Last year, a preliminary determination ruled that China can go ahead with levying the 13 per cent anti-dumping duty on dissolving pulp output from the Thurso mill in Quebec.

Thurso is known as a swing producer, with the ability to change production between NBHK pulp and dissolving pulp to best respond to changing market conditions.

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More analysts are hiking their price targets today on Detour Gold Corp. on the expectation that the company will be able to successfully ramp up its namesake mine in northern Ontario at a time when investors are gravitating back to the precious metals sector.

Beacon Securities analyst Michael Curran today hiked his price target on Detour Gold to $12.25 (Canadian) from $8.75 and maintained a "buy" rating. CIBC World Markets analyst Cosmos Chiu raised his target to $12.50 from $10.50 while reiterating a "sector outperformer" rating. Analysts at Raymond James, BMO Nesbitt Burns and Desjardins also increased their price targets over the last few days. According to Thomson Reuters data, the analyst consensus 12-month price target is now $10.58.

Part of the reason analysts are becoming more upbeat on the stock is Detour Gold now has the financing in place to support the ongoing ramp-up and reduce debt on its balance sheet. On March 7, the company completed an equity financing that raised $166-million (Canadian). The company is targeting production of nearly 500,000 ounces this year at cash costs of between $800 to $900 (U.S.) an ounce.

"We believe the de-risking process of Detour Lake is well underway, having completed its first year of production in 2013," said CIBC's Mr. Chiu.

Beacon's Mr. Curran now targets Detour Gold to trade at 0.90 times net asset value, up from his last estimate 0.65 times. That still represents a discount to mid-tier gold producers, which trade at 1.2 times net asset value.

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Better-than-expected operating performance has earned Endeavour Silver Corp. a target price increase.

Raymond James analyst Chris Thompson says Endeavour delivered lower-than-expected costs in fourth-quarter 2013, particularly at its El Cubo mine in Mexico. However, due to Endeavour's position as one of the highest-cost producers covered by Mr. Thompson, he expects the stock to trade in a "highly volatile fashion."

He maintains his "market perform" rating and increased his target price to $5.50 (Canadian) from $4.50. The analyst consensus price target over the next year is $5.15, according to Thomson Reuters.

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A high cash burn rate and signs that fewer planes have been manufactured than originally targeted has resulted in a lowered price target for Boeing Co. from UBS analyst David Strauss.

Mr. Strauss puts Boeing's 787 cash burn at about $6-billion (U.S.) in 2014, only slightly better than 2013. He sees Boeing's 787 cash burn improving by about $2-billion a year beyond 2014, reaching breakeven in 2017. That's two years later than guidance.

He also believes Boeing produced fewer 787s than its stated rate in 2013.

"When Boeing stepped production up to seven a month in May, along with introducing 787-9 into the flow, it disclosed that it had produced 114 787s while its 10 per month press release from January disclosed cumulative unit production at 155," he says. "This implies only 41 787s were produced in eight-plus months, less than five per month."

Mr. Strauss maintained his "neutral" rating and lowered his price target to $127 (U.S.) from $137. The analyst consensus price target over the next year is $153.75, according to Thomson Reuters.

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In other analyst actions:

Cantor Fitzgerald Canada downgraded Rocky Mountain Dealerships to "hold" from "buy" and cut its price target to $12.50 (Canadian) from $14.25, after a slide in fourth-quarter sales.

Canaccord Genuity upgraded Transcontinental to "hold" from "sell" and kept a $12.80 (Canadian) price target.

Laurentian Bank Securities initiated coverage on Ur-Energy Inc. with a "buy" rating and $2.60 (Canadian) price target.

Goldman Sachs downgraded Motorola Solutions to "sell" from "neutral" but raised its price target to $67 (U.S.) from $65.

Goldman Sachs upgraded Rite-Aid to "buy" from "neutral" and raised its price target to $8 (U.S.) from $5.

Credit Suisse downgraded Forest Laboratories to "neutral" from "outperform" but raised its price target to $96 (U.S.) from $91.

UBS hiked its price target on Adobe Systems to $80 (U.S.) from $70 and kept a "buy" rating.

For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities