Wednesday’s analyst upgrades and downgrades

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Inside the Market's roundup of some of today's key analyst actions. This file will be updated often during the trading day so check back for new details.

Shares of Apple Inc. (AAPL-Q) are likely to face "near-term headwinds" due to a slowing of sales of iPhones, said Merrill Lynch analysts Wamsi Mohan, Ruplu Bhattacharya, and Param Singh.

Accordingly, they cut their rating for the tech giant to "neutral" from "buy."

The group said that deceleration is likely to lead to a "significant slowdown in revenue growth." Though they see the new iPhone 6S/6S+ as an "incremental upgrade," it likely will not be enough to drive "a significant change in the pace of share gains."

At the same, other products, like Apple Watch, Apple Pay and Apple Music, are taking time to "ramp" and will not be able to offset the revenue dip.

"[T]he stock price is correlated to gross profit dollar growth, which despite the mix benefit of the iPhone will decelerate significantly over the next few quarters," they said.

They added: "Although the potential exists for each of these to become significant revenue drivers in the long run, the short to medium-term direction of the stock remains dependent on the iPhone."

On Tuesday, shares of Apple, the world's most valuable public company according to market cap, fell for the fifth consecutive day, closing down 4.4 per cent (or $5.19 U.S.) at $114.64. It's a decline of 14 per cent since the stock hit a peak of $133.60 in February.

The firm listed six key reasons it expects pressure on shares in the short term: 1) iPhone deceleration, 2) a slowdown in China marketshare gains 3) a deceleration in gross dollar profit growth, which is correlated to stock price, 4) A decline in the magnitude of earnings beats, 5) Only modest improvement to the iPhone coming, 6) low likelihood of more capital return plans.

Though they took a more bullish stance toward the company's long-term prospects, expecting new product achievements in the future, they lowered their price target to $130 (U.S.) from $142. Consensus is $147.29, according to Thomson Reuters.

"Given Apple's expertise from supply chain all the way to software, Apple can become a significant player overnight across many markets (music, gaming, social media, streaming services, mobile virtual network operator, etc.)," said the analysts. "Although we recognize this potential and continue to expect Apple to deliver phenomenal products, we believe the financials will take a pause from the significant growth witnessed over the past year and we would become more constructive at a lower stock price, when risk reward becomes a better trade off."Elsewhere, Independent Research analyst Markus Friebel upgraded his rating to "buy" from "hold."

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The potential sale of the U.S. portfolio of RioCan Real Estate Investment Trust (REI.UN-T) could be a "strategic positive," according to CIBC World Markets analyst Alex Avery, making the company a "pure-play" Canadian REIT again and allowing it to monetize "significant" gains from its U.S. investments.

However, Mr. Avery feels the sale could have a dilutive effect on financial results for multiple quarters. Coupled with transitional vacancies brought on by the departure of Target Corp. from Canada, he downgraded his rating for the REIT to "sector performer" from "sector outperformer."

RioCan's second-quarter funds from operations was 43 cents per unit, up a penny from both the same period in 2014 and Mr. Avery's forecast. Same property net operating income rose 15.5 per cent in the U.S. but fell 1.4 per cent in Canada, while occupancy dropped to 93.9 per cent from 96.9 per cent a year ago of which 2.7 per cent was disclaimed Target leases.

Accordingly, the analyst trimmed his estimates for both 2015 and 2016 fully diluted funds for operation and adjusted funds for operations to reflect these vacancies.

The company announced that it was pursuing a strategic review of its U.S. assets, citing among other reasons strong property pricing, the strength of the greenback and unsolicited interest to buy the assets.

"We expect a sale could happen in [the second half of 2015 or first half of 2016], ideally to a U.S. REIT on a tax efficient basis, allowing REI to realize gains as reinvestment opportunities arise," said Mr. Avery.

He also reduced his target price to $29 (Canadian) from $33 to reflect his net asset value estimate. Consensus is $30.67.

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A "sagging" unit price for Brookfield Property Partners LP (BPY-N, BPY.UN-T) has resulted in a "historically wide" 25-30-per-cent discount to net asset value, according to RBC Dominion Securities analyst Neil Downey.

Given the prospects for investor returns, he upgraded his rating to "outperform" from "sector perform."

For the second quarter, the property owner/operator reported funds from operation per unit of 28 cents, which was up 3 cents from the previous quarter and flat against the result from the same period in 2014. Both the retail and other opportunistic property segments beat Mr. Downey's estimates.

Noting the "significant disconnect" between the current unit price and NAV, he said approval for a new normal-course issuer bid from the TSX and NYSE of up to 13.1-million units should bring activity this week.

"Due to intrinsic value growth over the past 12-months, we believe repurchases will extend beyond the 0.2-million units and the $22.46/unit average price under the prior program (expired Jun-17)."

He added: "Our revised target still renders significant total return potential, in which we have stepped-up confidence, in light of capital recycling progress and the new [normal-course issuer bid]."

Mr. Downey did reduce his price target to $26 (U.S.) from $27. Consensus is $26.67.

"BPY and its predecessor entities have for many years capitalized upon the fact that the real estate industry is cyclical and that regions or asset classes do not move synchronously," he said. "Hence, a diversified (property type; geography) portfolio should demonstrate greater long-term stability than one with a specific geographic or property focus. Moreover, BPY's flexibility to shift capital to/from sectors and geographies that are out/in-favour, should give it an edge in the quest to deliver premium risk-weighted returns.

"Separate and distinct from BPY's ability to arbitrage values and capital flows globally, we see three key "internal" drivers of value growth: 1) lease rate mark-to-market via contractual steps and spread capture on rolls 2) office occupancy normalization (an increase of 300 basis points, to 95 per cent); and 3) developments and redevelopments (the currently active project list has a $5-billion total cost and a potential completed fair value of $8-billion), which could collectively allow for 8-10-per-cent annualized NAV/unit growth over five years ($13-$15/unit cumulatively, or more than 40-per-cent potential upside, to the mid-$40's, versus today's $29/unit NAV).

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Though he remains bullish on the business of Thoratec Corp. (THOR-Q) over the long term, Canaccord Genuity Jason Mills downgraded the stock to "hold" from "buy" as he expects the $3.4-billion (U.S.) acquisition of the company by larger rival St. Jude Medical Inc (STJ-N) to close by the end of the year.

"We have covered THOR for over a decade and have gotten to know many employees, who we have found to be truly dedicated to the mission of improving the lives of chronic heart failure patients," said Mr. Mills. "STJ would be well served to keep as many of THOR's valuable workforce – namely in [research and development], field sales force, and engineering, in our view."

After the bell on Tuesday, Thoratec reported second-quarter earnings per share of 37 cents (U.S.), beating the consensus estimate of 28 cents. Its revenue for the quarter was $128.7-million, also topping the forecast of $115.48-million, and representing a 9-per-cent increase from the same period in 2014.

Mr. Mills maintained a price target of $63.50 (U.S.). The average analyst target price is $56.25, according to Bloomberg.

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A promising debut for Heroes of the Storm helped lead Activision Blizzard Inc. (ATVI-Q) to strong second-quarter results, said Credit Suisse analyst Stephen Ju.

The video game company reported revenue and adjusted earnings per share of $759-million (U.S.) and 13 cents, respectively, ahead of both the consensus of $666.7-million and 9 cents and the guidance of $650-million and 8 cents.

"The confluence of better catalog sales, higher-than-expected attach rates for Call of Duty Advanced Warfare and Destiny DLC, as well as a strong debut for Heroes of the Storm drove the better-than-expected 2Q15 results," said Mr. Ju.

He called Heroes, a multiplayer online game, "the more material and interesting change to Activision's growth trajectory." Estimating it has about 20 million users since its June debut, Mr. Ju says it will soon overtake the popular Hearthstone: Heroes of Warcraft, a collectible card game, in revenue contributions.

After announcing the highly anticipated Starcraft II: Legacy of the Void will be released in the 2015 fiscal year, Activision raised its revenue and EPS estimates for 2015 to $4.6-billion and $1.30 from $4.425-billion and $1.20. That caused Mr. Ju to update his forecasts to $4.583-billion and $1.30 (from $4.334-billion and $1.18).

Maintaining his "outperform" rating, he raised his target to $35 (U.S.) from $30. The average analyst target is $31.18.

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In other analyst actions:

Advance Auto Parts Inc (AAP-N) was downgraded to "hold" from "buy" at Evercore ISI by equity analyst Greg Melich.

Atrium Mortgage Investment Corp (AI-T) was rated new "hold" at TD Securities by equity analyst Graham Ryding. The 12-month target price is $12 (Canadian) per share.

Allstate Corp (ALL-N) was raised to "neutral" from "underperform" at Macquarie by equity analyst Amit Kumar. The 12-month target price is $60 (U.S.) per share.

Bank of New York Mellon Corp (BK-N) was raised to "outperform" from "market perform" at Bernstein by equity analyst Luke Montgomery. The 12-month target price is $56 (U.S.) per share.

Walt Disney Co (DIS-N) was downgraded to "Hold" from "Buy" at Jefferies by equity analyst John Janedis. The 12-month target price is $112 (U.S.) per share. It was also downgraded to "market perform" from "outperform" at BMO Capital Markets by equity analyst Daniel Salmon with a target price of $110 per share.

First Solar Inc (FSLR-Q) was raised to "outperform" from "market perform" at Cowen by equity analyst Jeffrey Osborne. The 12-month target price is $65 (U.S.) per share.

Genworth Financial Inc (GNW-N) was raised to "neutral" from "underperform" at Macquarie by equity analyst Sean Dargan. The 12-month target price is $7 (U.S.) per share.

Hershey Co (HSY-N) was downgraded to "market perform" from "outperform" at Wells Fargo by equity analyst John Baumgartner.

JC Penney Co Inc (JCP-N) was raised to "hold" from "sell" at Evercore ISI by equity analyst Matthew Mcginley.

Lexmark International Inc (LXK-N) was raised to "market perform" from "underperform" at Bernstein by equity analyst Toni Sacconaghi. The 12-month target price is $35 (U.S.) per share.

National Oilwell Varco Inc (NOV-N) was downgraded to "hold" from "buy" at Argus by equity analyst Michael Burke.

Spectra Energy Partners LP (SEP-N) was raised to "buy" from "hold" at Jefferies by equity analyst Christopher Sighinolfi. The 12-month target price is $54 (U.S.) per share.

Starwood Property Trust Inc (STWD-N) was downgraded to "market perform" from "oitperform" at Wells Fargo by equity analyst Joel Houck.

T Rowe Price Group Inc (TROW-Q) was downgraded to "market perform" from "outperform" at Bernstein by equity analyst Luke Montgomery. The 12-month target price is $87 (U.S.) per share.

Zions Bancorporation (ZION-Q) was raised to "buy" from "hold" at Sandler O'Neill by equity analyst Brad Milsaps. The 12-month target price is $37 (U.S.) per share.

With files from Bloomberg