Skip to main content

The Globe and Mail

Tuesday's analyst upgrades and downgrades

Exteriors of the Lululemon shop at 153 Cumberland St. in Toronto's Yorkville neighbourhood on Feb. 6, 2014.

Fred Lum/The Globe and Mail

Inside the Market's roundup of some of today's key analyst actions. This file will be updated during the trading day.

Don't expect Lululemon Athletica Inc. to be taken private any time soon, says Canaccord Genuity Inc. analyst Camilo Lyon.

In light of founder Chip Wilson's exploratory exercise to take the retailer private, Mr. Lyon has updated his leveraged buyout model for the company.

Story continues below advertisement

"We conclude that for private equity to either go it alone or partner with Mr. Wilson on a buyout, the purchase price would need to approximate $35/share (below where the stock is today) to generate an internal rate of return of 20 per cent," he says. "Given the company's still-rich valuation of 22x P/E and 10x EBITDA coupled with a hefty market cap of $5.7-billion, we see the probability of such a deal occurring at a premium to LULU's current share price of $39.45 as very low."

He adds that taking Lululemon private at $45 (at an internal rate of return of 8 per cent) would require "a large equity check that would account for approximately 50 per cent of the transaction price, far greater than the standard approximate 30 per cent equity contribution by private equity sponsors."

Mr. Lyon maintains his "hold" rating and $42 (U.S.) price target.  The analyst consensus price target over the next year is $42.77, according to Thomson Reuters.

======

Wells Fargo raised its valuation range on BlackBerry Ltd. to $9.50 (U.S.) to $10.50, from $8.50 to $9.50, but still maintained a "market perform" rating on the company's shares.

Analyst Maynard Um also revised his earnings outlook on the company, now expecting a loss per share in fiscal 2015 of 58 cents, narrower than his earlier prediction for a loss of 88 cents. For fiscal 2016, he now sees a loss of only 8.2 cents, instead of a loss of 27 cents.

The revisions came after meetings with BlackBerry's management, said Mr. Um, who noted executives are confident that the company will meet its target for break-even cash flows by the end of fiscal 2015. He said cash flows will be aided by the company's shift to focusing on the enterprise sector, working capital that will come from the Foxconn deal, and the ability to lower operating expenditures if required.

Story continues below advertisement

The analyst consensus price target over the next year is (U.S.) $8.51.

======

Capital Power Corp. fell short of analyst expectations on earnings, but cushioned the blow with a dividend increase, RBC Dominion Securities analyst Robert Kwan noted.

The Alberta-based independent power producer posted an earnings miss on Friday due to unplanned outages and transmission constraints.

And even though Capital Power announced a 7.9 per cent increase to its dividend, a modest outlook for power pricing will put pressure on future quarters, Mr. Kwan said.

"We see better alternatives to play dividend growth in the sector," he said. "Against the backdrop of weak prices, we believe the stock will be range bound."

Story continues below advertisement

He maintained a "sector perform" rating while raising his target price to $27 (Canadian) from $25.

Meanwhile, CIBC World Markets analyst Paul Lechem also raised his price target on the stock to $29 from $26 while maintaining an "outperform" rating.

The analyst consensus price target over the next year is $26.59.

======

An additional $200-million in borrowing capacity will support Easyhome Ltd.'s growth while replacing the company's more restrictive and costly existing debt, Raymond James analyst Frederic Bastien said.

On Monday, the merchandise leasing company announced its new credit facility, which it said will primarily be used to expand Easyfinancial, the company's consumer finance business.

"This agreement looks promising to us as it not only positions Easyfinancial to grow at a faster pace than previously anticipated, but also eliminates the need for additional equity issuance over our forecast horizon," Mr. Bastien said.

He raised his target price to $26 (Canadian) from $22 while reiterating an "outperform" rating.

Meanwhile, Paradigm Capital raised its price target on Easyhome's stock to $30 from $25 and maintained a "buy" rating. And Beacon Securities raised its price target to $41.25 from $35 and maintained a "buy" rating.

======

Coming off a strong second quarter, Toromont Industries Ltd. has a solid track record, a good mix of end markets, and a "pristine balance sheet," Raymond James analyst Ben Cherniavsky said.

"Toromont's debt-to-capital ratio of 15 per cent remains criminally low, in our view. We expect the excess capital to be deployed effectively, albeit perhaps not immediately," he said.

He reiterated an "outperform" rating on Toromont's stock while maintaining a $29 (Canadian) price target. "We see attractive value in this stock at current levels," Mr. Cherniavsky said.

The analyst consensus price target over the next year is $27.50.

======

In other analyst actions:

TD Securities hiked its price target on Calfrac Well Services to $29 (Canadian) from $26 and maintained a "buy" rating.

National Bank Financial started coverage of Pine Cliff Energy with an "outperform" rating and $2.25 (Canadian) price target.

Laurentian Bank Securities raised its price target on Trevali Mining to $1.60 (Canadian) from $1.35 and maintained a "buy" rating to reflect a higher zinc price forecast.

Goldman Sachs downgraded Wal-Mart Stores to "neutral" from "buy" with a price target of $83 (U.S.).

Report an error Licensing Options
About the Author
Investment Editor

Darcy Keith is The Globe and Mail's Investment Editor. He has been a business journalist since 1992 and joined the Report on Business in 2010 from Yahoo! Canada, where he was the senior editor of finance. More

Comments

The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨