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.

Despite shares of TransAlta Corp. (TA-T;TAC-N) falling approximately 45 per cent thus far this year, Credit Suisse analyst Andrew Kuske upgraded his rating for them to "neutral" to "underperform."

"A large part of our ratings upgrade is based on the embedded value of TA's ownership position of TransAlta Renewables (RNW-T)," he explained. "Currently, the value of TA's RNW holding is greater than the parent's market capitalization. Given that view, we believe the current share price decline looks to be overly aggressive on multiple areas of uncertainty versus the base RNW value. We clearly have several issues with TA's core business and the existing Alberta power price outlook. Yet, we believe a baseline level of value may exist given the RNW position embedded in the stock."

Mr. Kuske said he believes TransAlta Corp. "possesses a very interesting position in Alberta's dynamic power market" over the long term. And, given the embedded value of TransAlta Renewables, "faces less downside risk at this point." Given its ownership interest, he said the companies' fortunes are "inextricably intertwined."

He decreased his target price for the stock to $8 (Canadian) from $10. The analyst consensus price target is $9.81.

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Expressing optimism about its Hope Bay project, CIBC World Markets analyst Jeff Killeen initiated coverage of TMAC Resources Inc. (TMR-T) with a "sector outperform" rating.

"With a high quality asset in Hope Bay, which is fully funded to production, has been extensively de-risked and, in our view, has tremendous upside potential, TMAC represents exactly what investors in the mining space seek: a good project, managed by good people with lots of opportunity for growth," he said.

Mr. Kileen said TMAC has had a "massive head start on developing a mine" given $850-million in capital was invested in Hope Bay prior its acquisition. He said the company is fully financed to reach commercial production, which was one of his 'buy case' factors for shares of the company.

Other factors included: it is currently at "similar levels to unfunded junior developers;" the near-term upside to its current valuation "given reserve growth is imminent," and "long-term upside potential exists with an extensive land package managed by a team known for making discoveries."

He set a 12- to 18-month price target for the stock of $9.50 (Canadian). Consensus is $8.13.

"We envisage several catalysts including an updated resource estimate and progressive de-risk points such as mill delivery that should lead to a re-rating of TMR and bring it in line with peers," said Mr. Killeen. "We also see the potential for mine optimization to have a positive impact on our TMR valuation and drive shares higher over the coming 12-18 months."

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BMO Nesbitt Burns analyst Gordon Tait lowered his price targets for several oil and gas producers in the context of recent results, a weak sector-wide outlook and lower commodity prices.

His changes included (with rating noted):

Crescent Point Energy (outperform, CPG-T) to $27 from $28. Consensus: $26.63.
Baytex Energy (market perform, BTE-T) to $9.50 from $10. Consensus: $12.29.
Bonterra Energy Corp. (market perform, BNE-T) to $26 from $30. Consensus: $32.60.
Enerplus Corp. (market perform, ERF-T) to $12 from $12.50. Consensus: $12.20.
Pengrowth Energy (market perform, PGF-T) to $2.50 from $3. Consensus: $2.91.
Trilogy Energy (market perform, TET-T) to $6 from $7. Consensus: $6.72.
Twin Butte Energy (market perform, TBE-T) to 70 cents from 80 cents. Consensus: 85 cents.
Zargon Oil and Gas (market perform, ZAR-T) to $2.20 from $2.60. Consensus: $2.14.

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Shares of EnerCare Inc. (ECI-T) are currently attractively priced and investors should stay in "accumulation mode," said Desjardins Securities analyst Chase Bethel.

Following a meeting with the company's executive management, Mr. Bethel said the repetition of the phrase "our customers" stood out.

"Furthermore, not only are newly implemented customer-focused initiatives building trust, but they are mostly beneficial to costs/efficiency. We like the course being set," he said.

According to Mr. Bethel, EnerCare is aiming to increase organic revenue growth to 8 to 10 per cent annually, with its heating, ventilating, and air conditioning (HVAC) strategy seen as the most important driver of that objective.

"ECI's business is now calibrated such that management expects to have an [approximately] 80-per-cent probability of entering into a recurring revenue relationship with an HVAC customer," said Mr. Bethel. "This is because it offers rentals, financing and extended protection plans on the units. The HVAC market is also quite fragmented, leaving room for growth in the number of transactions completed by ECI. We estimate that the [approximately] 17,000 transactions undertaken by ECI each year represent 10 per cent of the replacement market in Ontario."

He is also encouraged by the recent continuity in the company's rental assets, and he expects it will be proven not to be a "flash in the pan."

"Management reiterated that, in the month of July, unit additions exceeded gross attrition for the first time since 2008," he said. "This provides a good set-up for [the second half of 2015], in our view, given that door-to-door sales competition is highest during the summer months."

Maintaining his "buy" rating, he raised his 12-month price target to $16 (Canadian) from $15.75. The analyst consensus price target is $16.75.

"The company is benefiting from less aggressive competition and favourable regulatory changes in its water heater business, as well as traction stemming from its strategy to add high-value (eg. HVAC) customers," the analyst said. "In addition, its integration efforts relating to the OHCS acquisition remain on track."

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As a result of an approximately 15-per-cent reduction to RBC Dominion Securities' 2015 to 2019 average copper price projections, analyst Stephen Walker lowered his financial estimates for Newmont Mining Corp. (NEM-N).

Mr. Walker noted Newmont has "significant leverage" to copper price through a trio of mines -- Batu Hijau (Indoensia), Boddington (Australia) and Phoenix (United States). With an estimated 20-per-cent of Newmont's 2016 revenue coming from copper, he lowered his price target for the stock to $22 (U.S.) from $24, compared to an analyst consensus of $24.42.

The analyst said he is maintaining a positive outlook for the company, however, and maintained his "outperform" rating for the stock.

"We expect several projects to contribute to free cash flow growth at Newmont over the coming years, offsetting declining production at the Yanacocha [gold] mine [in Peru]," said Mr. Walker, who projects gold production compound annual growth rate to rise by 3.4 per cent from 2014 to 2017. "The Turf Vent Shaft at Carlin [in Nevada] is expected to achieve commercial production in late 2015 and this infrastructure should allow NEM to increase its higher grade underground Carlin reserves significantly. New production from Merian and Long Canyon remain on track to begin in late 2016 and [the first half of 2017], respectively."

He lowered his adjusted earnings per share estimates for 2015, 2016 and 2017 to $1.02, $1.04 and $1.69 from $1.08, $1.08 and $1.87, respectively.

Mr. Walker added: "We believe that Newmont, like other mining companies, is subject to commodity pricing risks, geopolitical risks, as well as development and operational risks, consisting of delays in constructing new projects, and slower-than-expected production growth and reserve replenishment. A key near-term driver for Batu remains the Indonesian government renewing the six-month copper concentrate export permit when it expires in late September."

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In the wake of its second dividend cut of the year, Freehold Royalties Ltd. (FRU-T) has a "relatively clean" balance sheet which should allow it to take advantage of "opportunistic" acquisitions that will likely emerge from "this weak business environment," said CIBC World Markets analyst Arthur Grayfer.

On Tuesday, Freehold announced a reduction of its monthly dividend to 7 cents from 9 cents.

"The cut allows the payout ratio to be sustainable in the current price environment and not increase the leverage of the company," said Mr. Grayfer.

He added: "Given the majority of working interest capital spend is non-operated, we have decreased our 2016 WI capex [capital expenditures] assumption by [about] $5-million to $20-million, and reduced our third party royalty capex assumption by $100-million to $415-million."

Maintaining his "sector performer" rating for the stock, Mr. Grayfer reduced his 12- to 18-month price target to $13 (Canadian) from $14.25. The average analyst target, according to Bloomberg, is $16.44.

"The primary risks to Freehold achieving our price target include a decline in commodity prices, higher-than-expected production decline rates, rising industry costs, additional changes to Alberta's royalty framework, a decline in drilling by leaseholders on the company's lands, and additional competition in the Canadian oil and gas royalty sector," he said.

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In other analyst actions:

BlackRock Inc (BLK-N) was raised to "buy" from "hold" at Gabelli & Co. by equity analyst Macrae Sykes.

Broadridge Financial Solutions Inc (BR-N) was rated new "overweight" at Barclays by equity analyst Darrin Peller. The target price is $61 (U.S.) per share.

CST Brands Inc (CST-N) was raised to "outperform" from "Market Perform" at Raymond James by equity analyst Benjamin Brownlow. The 12-month target price is $42 (U.S.) per share.

Fairchild Semiconductor International Inc (FCS-Q) was raised to "positive" from "neutral" at Susquehanna by equity analyst Christopher Caso. The 12-month target price is $18 (U.S.) per share.

Amicus Therapeutics Inc (FOLD-Q) was downgraded to "neutral" from "buy" at Chardan Capital Markets by equity analyst Gbolahan Amusa.

Heartland Payment Systems Inc (HPY-N) was rated new "Equal-weight" at Barclays by equity analyst Darrin Peller. The target price is $65.00 per share.

Host Hotels & Resorts Inc (HST-N) was downgraded to "market perform" from "outperform" at Cowen by equity analyst James Sullivan. The 12-month target price is $18.50 (U.S.) per share.

Hershey Co (HSY-N) was raised to "overweight" from "neutral" at JPMorgan by equity analyst Ken Goldman. The target price is $100 (U.S.) per share.

Kicking Horse Energy Inc (KCK-X) was rated new "buy" at Cormark Securities by equity analyst Amir Arif. The 12-month target price is $4.75 (Canadian) per share.

Madison Square Garden Co (MSG-N) was downgraded to "hold" from "buy" at Stifel by equity analyst Benjamin Mogil.

Plum Creek Timber Co Inc (PCL-N) was raised to "buy" from "neutral" at Dundee by equity analyst Stephen Atkinson. The 12-month target price is $43 (U.S.) per share.

TransAlta Corp (TA-T) was raised to "neutral" from "underperform" at Credit Suisse by equity analyst Andrew Kuske. The target price is $8 (Canadian) per share.

WebMD Health Corp (WBMD-Q) was raised to "outperform" from "market perform" at Cowen by equity analyst Charles Rhyee. The 12-month target price is $53 (U.S.) per share.

WestRock Co (WRK-N) was downgraded to "sector weight" from "overweight" at KeyBanc by equity analyst Adam Josephson.