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.
Sentiment for Whole Foods Market Inc. among both investors and analysts has taken a big step backwards after the high-end supermarket chain late Tuesday lowered its full-year profit and same-store sales outlook.
Its shares plunged 20 per cent at today's open in New York, triggering a short-sale circuit breaker, while numerous analysts downgraded the stock and significantly slashed their price targets.
Whole Foods, which is facing increasing competition for its natural and organic products, said it now expects per-share earnings between $1.52 (U.S.) and $1.56 on total sales growth of 11 per cent. It previously forecast per-share earnings between $1.58 and $1.65 on total sales growth of 11 per cent to 12 per cent. It now predicts same-store sales growth of 5 per cent to 5.5 per cent during the current fiscal year, down from its previous forecasted range of 5.5 per cent to 6.2 per cent.
"We were too quick to jump back on the Whole Foods bandwagon as we believed the company had turned a corner in the prior quarter and admittedly we were wrong," commented Piper Jaffray analyst Sean P. Naughton as he downgraded the stock to "neutral" from "overweight." He also cut his price target to $44 (U.S.) from $60.
He said the company is being too optimistic in outlining a long-term plan that will boost annual sales at existing stores by 6 per cent, given that competition is getting intense in that grocery segment.
Also on the Street, BMO Nesbitt Burns downgraded Whole Foods to "market perform" and slashed its price target to $40 (U.S.) from $65. Cantor Fitzgerald downgraded the stock to "sell" from "hold" and cut its target to $38 from $48. Deutsche Bank downgraded the stock to "hold" from "buy" and cut its target to $40 (U.S.) from $60 and Sterne Agee downgraded it to "neutral" from "buy" and cut its target to $40 from $60.
The median analyst price target is now $48, down from $60 a month ago, according to Thomson Reuters data.
BMO analyst Kelly Bania cited several areas of concern for the company going forward: "Importantly, we believe a more cautious approach to WFM shares is prudent given 1) the company's plans to continue accelerating new store growth in spite of weakening comp trends (sq. footage growth expected to increase to 11 per cent by fiscal 2018, up from 8-9 per cent in fiscal 2013); 2) company plans to lower operating expenses by 30-40 basis points annually through fiscal 2018 while still investing in technology initiatives, which in our view, risks negatively impacting the customer experience and may impede the company's ability to continue innovating its differentiated in-store experience; 3) risk that a continuation of price investments may take longer than expected to result in a favourable customer response absent a more aggressive advertising & marketing approach; and 4) risk that continued product innovations (in areas such as Non-GMO, more transparent conventional produce standards, etc.) may not resonate with a broad enough subset of customers near term, which may be required to help reinvigorate comp growth in an increasingly competitive environment for WFM's core natural and organic products."
It's not pretty for shares of Groupon Inc. today either after the Internet e-commerce site reported its latest quarterly figures and guidance after the bell on Tuesday. Shares are down nearly 20 per cent in mid-afternoon trading and several analysts have scaled back their expectations for the stock.
While Groupon's adjusted loss was a penny - better than the consensus for a loss of 3 cents - its guidance disappointed the Street. It forecasts second-quarter adjusted earnings before interest, taxes, depreciation and amortization of $45-million to $65-million, below the consensus of $72-million.
There was at least one ratings downgrade: Northland Capital Markets cut its recommendation to "market perform" from "outperform" while slashing its price target to $7 from $12.
Goldman Sachs lowered its price target to $8 from $10 while reiterating a "neutral" rating.
"While we continue to believe the opportunity in local (commerce) is significant and Groupon's critical mass of users and merchants gives it a meaningful advantage in addressing that opportunity, we believe the degree of difficulty in executing on Groupon's many initiatives is significant. Therefore, we remain neutral pending evidence of success in those areas," said Goldman analyst Heath P. Terry.
Elsewhere, Wunderlich cut its target price to $10 from $13 and reiterated a "buy" rating; Deutsche Bank cut its target to $8 from $12 and affirmed a "buy" rating; and Stifel cut its target to $12 from $14 and maintained a "buy" rating.
The median price target is now $8, down from $11 a month ago.
Analysts -- and certainly investors -- are sounding the alarm over Avigilon Corp. after it announced late Tuesday the third senior executive departure in the last six months. Shares are down 17 per cent in early TSX trading today.
The security solutions provider said chief financial officer Bradley Bardua left the company because of health concerns and that Wan Jung, a director, has been named interim CFO.
"We think the timing of Mr. Bardua's departure (one day before the fiscal first quarter 2014 earnings report, could not hold on for another day) is too coincidental for comfort," said Raymond James analyst Steven Li. "We believe Bardua was well thought of by the Street – and so this will be seen as a loss."
His "outperform" rating and $35 (Canadian) price target were both placed under review.
Chris Ross, executive vice-president of global operations, left in March of this year and Keith Marett, an executive in charge of marketing and product strategy, resigned in November 2013.
The company is expected to release its latest earnings after market close today. The consensus is for earnings per share of 14 cents, on revenues of $56.3-million.
Further upside is unlikely in the near- to medium-term in shares of Essential Energy Services Ltd., said Canaccord Genuity analyst John Bereznicki as he downgraded his rating to "hold" from "buy."
Essential Energy Services fell short of Mr. Bereznicki's first-quarter cash flow and earnings per share estimates, as the company experienced multiple challenges across virtually all of its core operating segments. Among factors negatively impacting the company were lower customer demand and equipment delivery delays, especially in its coil well service business.
"We expect Essential to benefit from increased Western Canadian Sedimentary Basin producer spending through the balance of this year and believe several of the company's Q1/14 challenges should prove transitory. That being said, we believe investment upside remains limited in the near to medium term," the analyst said in a research note.
He cut his price target to $3.25 (Canadian) from $3.75.
TD Securities analyst Scott Treadwell also downgraded his rating to "hold" from "buy" and cut his price target to $3.25 from $3.50.
Downside risk for Sherritt International Corp. is limited, even if the recent nickel price rally falters, according to RBC Dominion Securities analyst Patrick Morton.
Mr. Morton's base case model attributes 73 per cent of Sherritt's value to its nickel assets, but he says its oil and gas portfolio is a stable, high-margin backstop for the company.
"With the significant recovery in nickel prices year-to-date from about $6.40/lb to the current $8.27/lb, we think Sherritt's balance sheet strain has reduced significantly," he added. "While we expect the company to refinance its high yield bonds, we do not foresee a desperation financing or an equity component."
Mr. Norton notes that despite a 50 per cent increase in the shares since the 2013 results release, Sherritt still trades at a 42 per cent discount to net asset value, well below North American base metal peers at 21 per cent.
He maintains his "outperform" rating and increased his price target by $1 to $6 (Canadian). The analyst consensus price target over the next year is $6.02.
In other analyst actions:
FirstEnergy Capital downgraded Suncor Energy to "market perform" from "outperform" but raised its price target to $45 (Canadian) from $43.
TD Securities upgraded Lightstream Resources to "buy" from "hold" and raised its price target to $9 (Canadian) from $7.50. At least four other analysts also raised their price targets on the stock. The median target is now $7, up from $6.50 a month ago.
Raymond James downgraded Savanna Energy Services to "outperform" from "strong buy" and cut its price target to $10 (Canadian) from $11.
Raymond James upgraded ZCL Composites to "outperform" from "market perform" and hiked its target to $7.50 (Canadian) from $6.75.
Desjardins Securities downgraded EnerCare to "hold" from "buy" but raised its price target to $11.50 (Canadian) from $11.25.
Canaccord Genuity downgraded Veresen to "hold" from "buy" and cut its target to $16.50 (Canadian) from $17.
Paradigm Capital raised its price target on Input Capital to $4 (Canadian) from $3.20 and reiterated a "buy" rating.
BMO Nesbitt Burns hiked its target on Turquoise Hill Resources to $5.50 (Canadian) from $4.25 and affirmed an "outperform" rating.
SunTrust Robinson Humphrey downgraded eBay to "neutral" from "buy" and cut its price target to $58 (U.S.) from $62.
Jefferies upgraded FirstEnergy to "buy" from "hold" and raised its price target to $37 (U.S.) from $31.
Credit Suisse upgraded Office Depot to "outperform" from "neutral" and raised its price target to $7 (U.S.) from $6.13.
MKM Partners upgraded Hilton Worldwide to "buy" from "neutral" and raised its target to $27 (U.S.) from $24.