Inside the Market's roundup of some of today's key analyst actions. This file will be updated during the trading day.
RBC Dominion Securities analyst Robert Kwan upgraded Fortis Inc. to "outperform" from "sector perform," believing that the utility will now be taking a pause in making acquisitions to focus on significant organic growth in earnings.
Mr. Kwan believes core regulated utility growth will be the dominant theme for the company next year, as it showcases the earnings from its two recent U.S. acquisitions. At a recent investor day presentation, management said the company is entering a period of significant organic growth, with an expected four-year compounded annual growth rate in its rate base through 2018 to be as high at least 7 per cent.
"A year without M&A would provide a full year of 'clean' results, such that the earnings power of the company can be showcased after its two recent U.S. acquisitions. We are positive on this strategy as it reduces the risk of a capital overhang that is typically associated with M&A activity. Furthermore, we believe that the company is able to fund its current five-year rate base capital plan (excluding LNG-related activities) without issuing common equity," Mr. Kwan said in a research note.
He raised his price target to $40 (Canadian) from $37. The analyst consensus price target over the next year is $36.75, according to Thomson Reuters data.
Citing concerns about the non-regulated portions of Canadian Utilities Ltd.'s businesses, RBC's Mr. Kwan downgraded his rating on the company to "sector perform" from "outperform."
He is particularly concerned about the impact of weak Alberta power prices.
"Since mid-August, Alberta power prices have averaged a meager $25/MWh, which is dramatically lower than the historical average for this time of year. Furthermore, the Alberta power price outlook has weakened with the forward curve recently dipping slightly below $50/MWh," he noted.
Mr. Kwan also says that the verdict is still out on new contract wins at the company's Structures & Logistics business. "With the expected completion of the Jansen potash and Wheatstone LNG projects by the end of 2014 and no new major projects announced as of yet, our forecast improvement in Structures & Logistics results in 2015 are at risk, and absent major new projects, results in 2015 could quite possibly come in lower than 2014. Although Canadian Utilities only has a 24.5 per cent interest in the Structures & Logistics business, we believe that the lack of growth visibility could further weigh on the share price," he said.
Mr. Kwan cut his price target to $42 (Canadian) from $43. The analyst consensus price target over the next year is $44.
Emera Inc. is poised to continue to realize growth from its energy infrastructure in Atlantic Canada and New England, RBC Dominion Securities analyst Robert Kwan said in a note.
He cited the company's "drive to deliver lower carbon power solutions with a reasonable impact on customer bills. This has been an important part of Emera's strategy (and success) to date and a win-win for customers and shareholders."
He upgraded the stock to "outperform" from "sector perform" and raised his price target to $41 (Canadian) from $38. The analyst consensus price target over the next year is $37.47.
Rona Inc.'s shares have become overvalued since the company exceeded analysts' earnings expectations in mid-August, Canaccord Genuity analyst Derek Dley said.
After the company posted a second-quarter earnings beat, the stock rose by about 15 per cent as of Friday's closing price. "However, the fundamentals do not support the current valuation, in our view," Mr. Dley said.
"We continue to be cautious on the home renovation spending market in Canada due to both high competition and what we view as a cautious consumer spending market."
He also cited the company's weak revenue growth in the previous quarter, low margins compared to its competitors, and high trading multiple relative to historical average.
Mr. Dley downgraded Rona stock to "sell" from "hold" and maintained a target price of $12 (Canadian). The analyst consensus price target over the next year is $13.13.
While Lumenpulse Inc. has solid growth prospects in an expanding market, the company's valuation "gives us pause," BMO Capital Markets analyst Thanos Moschopoulos said in a note initiating coverage of the stock.
The designer and manufacturer of LED lighting systems went public last April. "We believe that the lighting industry is still in the early innings of a multi-year upgrade cycle, given the compelling advantages that LED lighting offers over traditional lighting sources," Mr. Moschopoulos said. "Lumenpulse has, in our view, established itself as an innovative vendor in this space."
The company is currently trading at a premium to its peers, the analyst said. And while a premium is warranted, there may be limited upside potential over the next year.
He applied a "market perform" rating on Lumenpulse's stock at a price target of $16.50 (Canadian). The analyst consensus price target over the next year is $27.44.
HSBC upgraded First Quantum Minerals to "neutral" from "underweight" with a price target of $20.80 (Canadian).
Paradigm Capital downgraded TransGlobe Energy to "hold" from "buy" with a price target of $8.75 (Canadian).
BMO Nesbitt Burns upgraded Rio Alto Mining to "outperform" from "market perform" with a price target of $3.50 (Canadian).
Goldman Sachs downgraded Anadarko Petroleum to "neutral" from "buy" and cut its price target to $102 (U.S.) from $122.
Merrill Lynch upgraded L Brands to "neutral" from "underperform" and raised its price target to $75 (U.S.) from $54.
Jefferies initiated coverage on Alibaba with a "buy" rating and $118 (U.S.) price target.
RBC Dominion Securities downgraded Precision Castparts to "outperform" from "top pick" with a price target of $265 (U.S.).
With files from Bloomberg