Tuesday’s analyst upgrades and downgrades

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Inside the Market's roundup of some of today's key analyst actions

Desjardins Securities analyst Michael Parkin expects Primero Mining Corp. (P-T) to generate negative free cash flow over the next two years.

In a research note reviewing first-quarter results in the precious metals sector, Mr. Parkin downgraded the stock to "sell" from "hold" after a "more fulsome" review of his estimates for the company.

"Despite expectations for a weak quarter with the strike at San Dimas occurring over about half of the quarter, the production and operating results still missed consensus and our estimates," he said. "In the quarter, the positive trend at Black Fox reversed, with all-in sustaining cost (World Gold Council) of $1,233 (U.S.) per ounce after three consecutive quarters of decline and 4Q16 AISC (WGC) of $1,101 per ounce. What is more of a concern than one of its two operations producing at an AISC (WGC) roughly in line with spot prices is that we expect AISC to trend higher at Black Fox after stockpiles are depleted, which is expected to occur in July. The company will need to find some serious exploration success at the property — and soon—to avoid this outcome. Management estimates that pulling ore from the stockpile costs $30 per ounce compared with estimated mining costs of $330 per ounce in 1Q17. Management discussed the possibility of placing the operation on care and maintenance if AISC cannot be reduced after the stockpile is depleted."

Mr. Parkin is estimating production of 137,000 gold equivalent ounces, which is below the bottom of the company's production guidance range of 140,000 to 170,000 GEO. His cash cost projection is $887 per GEO, which would be above guidance ($700-850 per GEO).

"We are being conservative with our annual production estimates compared with guidance because the company was unable to meet its original guidance in 2016," he said. "Our fully baked AISC (Desjardins standard) of $1,415 per GEO in 2017 indicates that the company will struggle to add cash to the balance sheet at current gold prices and under the current cost structure."

Mr. Parkin lowered his target price for the stock to 40 cents from 75 cents. The analyst consensus price target is $1.01, according to Thomson Reuters data.

"We will be more positive on Primero when we see progress on the financing overhang, clarity on the San Dimas tax dispute and/or the asset base generating cash," he said.

Mr. Parkin raised his target for First Majestic Silver Corp. (FR-T) to $16.75 from $16.50 with a "buy" rating (unchanged). Consensus is $20.76.

"With production expected to trend higher over the remainder of 2017, we are confident that the company will be able to meet guidance," he said. "We currently estimate the company will produce silver equivalents near the top of its guidance range. Production is expected to trend higher due to the ongoing exploration and development work, and should enable the company to have better access to more working faces, allowing for more mining flexibility. We continue to value the stock based on a 16.5 times multiple to our NTM [next 12 month] EBITDA estimate. With our NTM EBITDA estimate rising by 2 per cent, our target price ticked up by about the same amount as well."

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Though Boyd Group Income Fund (BYD.UN-T) experienced lower same-store sales growth in the first quarter, headwinds are now "fading," according to Raymond James analyst Steve Hansen, who expects M&A activity to "re-accelerate."

On May 12, the Winnipeg-based fund reported in-line quarterly results. Adjusted earnings before interest, taxes, depreciation and amortization of $32.8-million met Mr. Hansen's projection ($32.7-million) and the Street's expectation ($33-million). It was a jump of 11.2 per cent year over year.

However, revenue increased 8.2 per cent to $370-million, slightly below the analyst's estimate of $384-million.

"As guided, BYD's SSS (ex-FX) came in at a relatively modest 1.2-per-cent increase year over year, a sizeable step down vs. prior quarters, due to exceptionally warm/dry winter conditions across BYD's network that limited collision repair demand," said Mr. Hansen. "Still, despite these conditions, management noted their ability to take modest share during the quarter. They also noted that many of these same pressures were beginning to fade, suggesting a modest quarter-over-quarter expansion in SSS growth during 2Q17. M&A activity, however, fell slightly below expectation."

"Following a strong rebound in 2016 (58 new stores, up 18 per cent year over year), BYD's acquisition pace has slowed in more recent periods, with only 7 stores added in 1Q17. Despite this temporary lull, management remains confident in its pipeline of both single and multi-store operators, a position no doubt reinforced by BYD's balance sheet that remains in excellent shape with less than a turn of debt on the balance sheet (mrq) and $350-million in available liquidity to pursue its growth agenda. In this context, we expect BYD's acquisition pace to accelerate through 2H17."

Based on the results, Mr. Hansen raised his 2017 and 2018 adjusted earnings per unit projections to $3.56 and $4.32, respectively, from $3.55 and $4.32.

With an "outperform" rating, he increased his target to $100 from $90. Consensus is $98.92.

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Anticipating "strong" demand for its new iPhone products upon launch in September, Canaccord Genuity analyst T. Michael Walkley raised his target price for Apple Inc. (AAPL-Q) shares.

"However, we believe consumers have started to delay iPhone purchases ahead of the anticipated new devices, leading us to slightly lower our near-term estimates," he said.

Though he said Apple gained a "strong" share of the premium-tier smartphone market globally in the first quarter of the 2017 calendar year, Mr. Walkley said it generated 83 per cent of industry profits, down from 88 per cent in the previous quarter. He pointed to Samsung's improved results and other competitors, including LG and Sony, reducing losses.

"We remain impressed with strong Q1 iPhone sales of 50.8M despite growing consumer anticipation for the upcoming iPhone 8 launch in September," he said. "With supply meeting demand for the iPhone 7 Plus in January, we anticipate seasonally slower iPhone sales and decreasing inventory levels during the June and part of the September quarters as consumers delay purchases ahead of the anticipated iPhone 8 launch in September."

Accordingly, Mr. Walkley lowered his fiscal 2017 iPhone unit estimate to 219 million from 223 million, while his fiscal 2017 projection rose to 248 million from 242 million due to a "growing installed base and our expectations for strong iPhone upgrade sales to this base."

"We believe the iPhone installed base will exceed 635 million exiting calendar 2017, and this impressive installed base should drive strong iPhone replacement sales and earnings, as well as cash flow generation to fund strong long-term capital returns," he said. "We anticipate a stronger upgrade cycle in C2018 with the 10-year anniversary iPhone 8, as our surveys indicate strong consumer interest in and anticipation for new iPhones anticipated to launch in September. Given our increased 2018 iPhone estimates, we have increased our calendar 2018 EPS estimate [to $11.10 U.S. from $10.94."

With that change, he increased his target to $180 from $165. Consensus is $152.98.

"While we anticipate certain new product introductions could generate stronger sales in one year versus another, we believe Apple's growing share of the high-end smartphone market positions Apple for a strong, loyal customer base that could enable Apple to maintain and grow its share of the premium tier smartphone market, helping Apple generate very strong long-term sales, earnings, and cash flows," the analyst said. "We also believe the loyal and growing customer base provides Apple with a strong base to drive additional sales including growing services revenue and new hardware products such as Airpods and Apple Watch. Given our expectations for a strong upgrade cycle starting in September, we reiterate our BUY rating."

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It was another "tough" quarter for Boardwalk Real Estate Investment Trust (BEI.UN-T), said Raymond James analyst Ken Avalos.

However, he said "many signs point to the bottom being in" following the release of the Calgary-based REIT's first-quarter financials on May 11.

"We continue to think longer-term investors who can look through the volatility that may occur over the next quarter or two will be rewarded with outsized returns over a 12–18 month period," said Mr. Avalos. "Our belief is that when sequential comps turn positive, which we expect late in 2017, it will be difficult for short investors to keep carrying the 7 million-plus short positions. If the Company can stem the negative earnings revisions and SPNOI [same-property net operating income] stabilizes, those catalysts could be positive enough for the stock to ride higher, outperforming the broader sector and peers."

Boardwalk reported funds from operations of 51 cents per unit, down 34 per cent year over year and missing the projections of both Mr. Avalos (56 cents) and the Street (59 cents). SPNOI dropped 22 per cent from the precious year to the low point in the REIT's history, while revenue fell 9 per cent and expenses rose 12 per cent.

Despite the lower-than-anticipated results, Mr. Avalos did see multiple signs of stabilization, noting: "Occupancy within the stabilized portfolio increased each month, and was up 90 basis points overall quarter over quarter. Post-quarter, occupancy rose another 40 basis points, ending April at 95.1 per cent. January to April move-outs are down 14 per cent year over year and rentals are up 5 per cent. Cash incentives, while still high, declined sequentially. The pace of sequential revenue declines slowed, down 1 per cent versus a 2.9-per-cent decline in two of the previous three quarters. Lastly, management didn't revise guidance downwards, which it had previously done every quarter in 2016."

Mr. Avalos did lower his 2017 and 2018 FFO per unit projections to $2.34 and $2.55, respectively, from $2.43 and $2.56.

His target rose to $50 from $48.50 with an "outperform" rating (unchanged). Consensus is $45.86.

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Premium Brands Holdings Corp. (PBH-T) had a "solid start" to the year, said BMO Nesbitt Burns analyst Stephen MacLeod.

On Monday, the Richmond, B.C.-based company reported adjusted earnings per share of 52 cents, meeting Mr. MacLeod's projection and 4 cents above the consensus.

"By segment, Specialty Foods EBITDA was in line (organic growth a bit light, but strong gross margin, and EBITDA in Premium Food Distribution was higher than expected," he said.

In reaction to the results, the analyst raised his EPS projection for 2017 by 5 cents to $3.24, while his 2018 estimate moved to $3.90 from $3.72.

"Growth in 2017 is likely weighted to H2, with a new sandwich facility and a foodservice distribution facility both coming online," said Mr. MacLeod. "We believe these growth initiatives are fully reflected in the stock, which is trading at 15.3 times 2017 estimated and 13.6 times 2018 estimate enterprise value/EBITDA."

With an unchanged "market perform" rating, he increased his target to $95 from $83. Consensus is $86.22.

"We rate Premium Brands shares Market Perform, largely due to the stock's valuation," he said. "We believe that the company is well positioned to benefit from longterm and emerging consumer trends, which we expect to provide support for organic growth across Premium Brands' businesses over the next several years."

Elsewhere, Canaccord Genuity analyst Derek Dley bumped his target to $82 from $74 with a "hold" rating (unchanged).

"We believe the recent operational changes justify a slightly higher valuation multiple, given the successful execution of similar initiatives in previous instances," said Mr. Dley. "In our view, Premium Brands offers investors an attractive growth story, with margins set to expand following the completion of recent capital investments. However, with a current valuation of 15.7 times our 2017 EBITDA estimate, we believe the shares are fully valued at the current level."

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Following a "solid" quarter, CIBC World Markets analyst David Popowich upgraded Storm Resources Ltd. (SRX-X) to "outperformer" from "neutral."

"Storm has underperformed its peers in each of the past two quarters, despite being on track to deliver some of the strongest debt-adjusted growth in the group," he said. "Whereas the stock previously garnered a premium valuation, it now trades at a discount to the gas-weighted peer group. We see no operational basis for the discount, and are upgrading Storm."

His target rose to $5.75 from $5.25. Consensus is $5.93.

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In other analyst actions:

Macquarie analyst Konark Gupta downgraded WestJet Airlines Ltd. (WJA-T) to "neutral" from "outperform" with a target of $25, down from $27. The analyst average price target is $22.83, according to Bloomberg data.

Alta Corp Capital Inc. analyst Mark Westby upgraded Questor Technology Inc. (QST-X) to "outperform" from "sector perform." He raised his target to $1, which is the consensus, from 80 cents.

Cormark Securities Inc. analyst Tyron Breytenbach downgraded Integra Gold Corp. (ICG-X) to "tender" from "speculative buy" with a target of $1.20, down from $1.40. The average is $1.24.

Laurentian Bank Securities analyst Ryan Hanley initiated coverage of Rubicon Minerals Corp. (RMX-T) with a "buy" rating and $3 target. The average is $3.08.

Berenberg analyst Corinna Freedman initiated coverage of Lululemon Athletica Inc. (LULU-Q) with a "hold" rating and $54 (U.S.) target. The average is $60.48.

Argus Research Corp analyst John Staszak upgraded Yum! Brands Inc. (YUM-N) to "buy" from "hold" with a $80 (U.S.) target. The analyst average target is $72.88.

Citi analyst Andrew Baum cut Pfizer Inc. (PFE-N) to "sell" from "neutral" and reduced his target to $31 (U.S.) from $38, which is the consensus.