Inside the Market's roundup of some of today's key analyst actions. This file will be updated during the trading day.
Citing concern that its CPE-6 oil block in Colombia may not deliver the kind of production the company had hoped for, Desjardins Securities analyst Justin Anderson downgraded Pacific Rubiales Energy Corp. to "sell" from "hold."
He also cut his price target to $17 (Canadian) from $23.
In company filings this month, Pacific Rubiales said the well's productivity averaged a "limited" 125 barrels of oil per day, noted Mr. Anderson. While still in an early stage, the results "heighten our existing concerns" over the asset's ability to deliver on company guidance to replace production from the Rubiales field by 2016, he said. Rubiales is presently the country's largest, and whether other oil blocks in the country will be as successful is yet unproven.
Mr. Anderson also worries about whether the company's enhanced oil recovery technology, known as Synchronized Thermal Air Recovery, can successfully work at commercial scale.
The analyst consensus price target over the next year is $21.93, according to Thomson Reuters data.
Investors are undervaluing the Highway 407 toll road, one of SNC-Lavalin Group Inc.'s core investments, according to Dundee Securities analyst Maxim Sytchev.
Mr. Sytchev believes the market is stuck on an outdated valuation of SNC's 17-per-cent stake in the highway asset.
"While some have suggested that the only way the market can re-evaluate the concessions portfolio is through an outright sale of a given asset to another party, we disagree," he says, in a research note. "The market simply needs to account for growth prospects of 407 ETR."
SNC recently sold its stake in Alberta electricity transmission company AltaLink to Berkshire Hathaway Energy for $3.2-billion, which was well above the consensus valuation. Similarly, the market is "missing" considerable value in SNC's other hard asset investments, Mr. Sytchev says.
He raised his target price on SNC's stock to $67 (Canadian) from $62.50, while maintaining a "buy" recommendation. The analyst consensus price target over the next year is $57.43, according to Thomson Reuters.
Citing a "fundamental shift" in its investment thesis, Raymond James analyst Ben Cherniavsky upgraded WestJet Airlines Ltd. to "outperform" from "market perform" while reiterating a $28 (Canadian) price target.
Much of his renewed optimism over WestJet stems from its new regional airline Encore, which he now sees boosting demand for airline seats rather than creating capacity that may not be needed.
There's "compelling and unique evidence that proves the airline is indeed creating demand by entering new regional markets and lowering fares," Mr. Cherniavsky said in a research note.
But he also sees Encore being a competitive threat for Air Canada, whose stock he continues to rate "underperform."
"Specifically, we estimate that Air Canada stands to lose over $150-million of revenues once Encore establishes a significant presence in Toronto and begins servicing new regional markets in Ontario and across the border," he said. He also sees risks to Porter Airlines resulting from Encore's entry into Eastern Canada.
"Excess capacity in Canada's airline sector has been our key concern over the past 15 months," Mr. Cherniavsky said. "While Air Canada has been the main culprit in this story, WestJet has also been increasing its available seat miles at a rate that has eroded pricing power. This remains a near-term concern for us. That said, we recognize that WestJet's capacity strategy is largely designed to leverage Encore's expanding regional operations, from which as many as 50 per cent of new guests are connecting into the mainline network. In the long-run, we see this as having a much different (bigger) impact on earnings growth than Air Canada's (Rouge) capacity strategy of lowering costs by putting the same (old) planes with more seats, a new paint job, and less legroom on many of the same routes with new, lower wage, flight attendants in cute hats.
"If Encore eventually sweeps Porter into the dustbin of Canada's ignominious airline failures, then the two survivors—namely, WestJet and Air Canada—will surely benefit by picking up some of the pieces—such are the dynamics of a zero-sum game. Our preferred way for investors to play this possible long-term outcome is by owning WestJet's shares."
The consensus price target for WestJet is $30.34.
CIBC World Markets analyst Paul Holden is looking for another quarter of solid earnings from Canaccord Genuity Group Inc.
Mr. Holden raised his earnings per share estimates, from 17 cents to 20 cents, based on industry data and announced deals.
"Once again, we expect the U.K. business to lead with all the largest deals coming in that geography," he said in a research note. "There are positive signs of life in the Canadian business with Canaccord leading a number of notable deals post quarter-end and advising Yamana on its part of the Osisko transaction."
The company's fiscal fourth quarter is scheduled to be released June 3.
Mr. Holden maintained his "sector outperform" rating and raised his price target to $10.50 (Canadian) from $9.45. The analyst consensus price target over the next year is $9.63, according to Thomson Reuters.
An update on Baytex Energy Corp.'s acquisition of Aurora Oil & Gas has reaffirmed CIBC World Markets analyst Jeremy Kaliel's bullish view on the company's shares.
Mr. Kaliel notes that 88 per cent of Aurora shareholders approved the $2.8-billion acquisition, which is expected to close in the first half of June.
He also pointed out the resignation of chief operating officer Marty Proctor, who will be replaced internally by Richard Ramsey. "While we see this as a loss for Baytex, we believe Mr. Ramsey is very capable of filling the role," he says.
Mr. Kaliel maintained his "sector outperformer" rating and his price target of $56 (Canadian). The analyst consensus price target over the next year is $52.61, according to Thomson Reuters.
In other analyst actions:
Raymond James downgraded Sulliden Gold to "market perform" from "outperform" and cut its price target to $1.20 (Canadian) from $1.80.
TD Securities upgraded Methanex to "buy" from "hold" and reiterated a $69 (U.S.) price target.
Evercore Partners upgraded Facebook to "overweight" from "equal weight" and raised its target to $75 (U.S.) from $69.
Credit Suisse upgraded Worthington Industries to "outperform" from "neutral" and raised its price target to $46 (U.S.) from $43.
Jefferies upgraded Nabors to "buy" from "hold" and raised its target to $31 (U.S.) from $28.