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.
Kelt Exploration Ltd. (KEL-T) has a lot to offer current investors, according to Raymond James analyst Jeremy McCrea.
He initiated coverage by upgrading the rating of the stock to "strong buy" from "outperform."
"Over the past few years, the company has taken an aggressive (yet disciplined) approach to establishing a land base throughout key Montney regions, with its total Montney acreage (AB + BC) now totaling [approximately] 430 net sections," Mr. McCrea said. "As completion technologies have concurrently emerged, there are numerous sections of Kelt's land base that are seeing some of the top performing Montney wells. As Kelt enters the second phase of its life-cycle, where exploration gives way to development, the initial exploratory results found throughout Kelt's land should be highly encouraging for investors in terms of growth potential. Although some investors have taken notice of the recent excellent Montney results (Pouce and Inga), these wells were still completed in 'somewhat' inadequate styles that management plans to change for 2016."
Mr. McCrea touted the company's "done-it-before" management team, a "prudent eye on its balance sheet" and "a valuation that has never appeared cheaper."
He tweaked cash flow per share estimates for both 2015 and 2016 to 41 cents and 58 cents from 44 cents and 58 cents, respectively. His revenue projections declined to $186-million and $226-million from $190-million and $235-million, respectively.
"With production declines inherent in all E&P companies, the need to back-fill drilling to maintain production remains always a risk, especially if commodity prices remain low and cash flow are unavailable," the analyst said. "That said, we believe our modelling of the company's capex program next year, in the context of expected cash flow and leverage will enable the company to overcome some if not all production declines. That said, changes in bank lines or a sharp decline in commodity prices could reduce expected spending plans."
Mr. McCrea raised his target price for the stock to $8.50 from $7.50. The analyst consensus is $8.23, according to Thomson Reuters.
Bank of Montreal (BMO-T, BMO-T) kicked off fourth-quarter bank earnings season "with a bang," said Desjardin Securities analyst Doug Young.
BMO reported cash earnings per share of $1.90, topping both the analyst's estimate ($1.72) and the consensus ($1.74.). Its reported EPS of $1.83 also beat the Street's projection of $1.70.
"On a positive note: Canadian personal and commercial banking earnings were better than expected; capital markets results were surprisingly good; its [common equity Tier 1 or CET1] ratio was a healthy 10.7 per cent (or 10.0 per cent pro forma the acquisition of GE's transportation finance business); and credit trends were generally good," said Mr. Young. "That said, U.S. P&C banking earnings were weaker than we expected, and management expects provisions for credit losses (PCLs) to start trending higher in FY16—no surprise."
In response to the earnings, Mr. Young tweaked his cash EPS projections for 2016 and 2017 to $7.25 and $7.70 from $7.19 and $7.71, respectively. His reported EPS estimates went to $7.05 and $7.50 from $6.99 and $7.50.
He maintained a "hold" rating for the stock while bumping his price target by a loonie to $80. The analyst average, according to Bloomberg, is $81.27.
"With a larger contribution from business banking, BMO has lower relative exposure to a slowdown in personal lending in Canada," said Mr. Young. "And the acquisition of GE's transportation finance business (closed Dec. 1) looks like a good deal. That said, modest headwinds will persist as its U.S. PCL and purchasing performing loan (PPL) books mature over the next few years. We expect provisions for credit losses to begin trending higher in FY16. BMO will be challenged to hit its 15-per-cent return on equity ROE target near-term, in our view. We expect it to raise dividends at a slower pace versus peers. And we believe it is fairly valued already."
Elsewhere, TD Securities analyst Mario Mendonca raised his rating for BMO to "buy" from "hold" and increased his 12-month target price to $87 from $82.
`Ahead of the release of its second-quarter 2016 earnings on Dec. 8 after markets close, Raymond James analyst Kenric Tyghe downgraded Empire Company Ltd. (EMP.A-T) to "market perform" from "outperform."
Based on a food consumer price index (CPI) of 4.2 per cent for the three months ending with October, Mr. Tyghe maintained his Sobeys same-store sales (SSS) estimate (excluding fuel) of 1.5 per cent.
"While the level of Sobeys' promotional activity is we believe supportive of our unchanged Sobeys (excl. fuel) SSS estimate … it was relatively aggressive," he said. "We expect fresh focused promotions to have driven a valuable increase in fresh tonnage, but are cautious on the in quarter returns from these initiatives."
However, he did lower his earnings before interest, taxes, depreciation and amortization (EBITDA) and earnings per share (EPS) projections for the quarter to $306.3-million and 40 cents from $321.8-million and 45 cents, respectively.
"Our revised EBITDA and EPS estimates we believe (i) better reflect the high (absolute and relative) levels of promotional activity in evidence at Sobeys in the quarter, (ii) a further deterioration in Western Canada (as highlighted in recent competitor reports), and (iii) the continued (perhaps even elevated) drag of change management at Safeway," the analyst said. "We are modelling both higher than initially expected gross margin compression and lower [selling, general and administrative expenses or SG&A] leverage in F2Q16E."
His EPS estimates for both 2016 and 2017 also fell to $1.70 and $1.94 from $1.81 and $2.07, respectively.
Mr. Tyghe lowered his price target for the stock to $28 from $31. Consensus is $29.58.
"We believe that our target multiple … appropriately reflects both the heightened integration risks and weak Western Canadian macro backdrop," he said.
Though he noted the end markets of KLX Inc. (KLXI-Q) have not "markedly improved," RBC Dominion Securities analyst Steven Cahall upgraded his rating for the stock to "sector perform" from "underperform" based on management's exploration of a stock buyback.
The distributor and service provider of aerospace fasteners and consumables reported third-quarter adjusted earnings per share of 48 cents (U.S.), lower than Mr. Cahall's 59-cent projection. The company's adjusted EBITDA of $54-million fell below the analyst's $69-million estimate.
"KLX trimmed ASG sales guidance for 2015, with growth now expected at 'single-digit' versus the prior 'mid-single digit,' however margin expansion is still anticipated as management is expecting to further reduce [Aerospace Solutions Group or ASG's] cost structure," he said. "On the [Energy Service Group] side, operations continue to remain challenged, with management expecting a recovery in the energy end-markets to occur in late 2016 and early 2017. Management also expects to take further cost action here by continuing to trim its workforce by 500 heads. Broadly, the strategy at ESG remains the same, with management focused on attaining assets at distressed prices and growing market share using their strong liquidity position."
He added: "KLXI's strong FCF generation has continued despite the challenged end markets, generating $31-million in the quarter and $91-million year to date. The negative pre-announcement caused shares to decline precipitously (-20 per cent), and management now believes that KLXI shares are undervalued and is engaging the board to approve a possible buyback authorization. They also noted that there were some ASG assets at reasonable multiples that were being considered.
Based on lower earnings in its ASG segment, Mr. Cahall cut his adjusted EPS projections for 2015, 2016 and 2017 to $2.25/$2.21/$3.07 from $2.39/$2.61/$3.49.
He also lowered his price target for the stock to $34 from $36. The analyst average is $39.83.
"Our target multiple of 13.4x is a blend of 13x on ASG earnings with a net drag from ESG, for a new [target]," Mr. Cahall said. "However, while end markets remain challenged, we think that the possibility of a buyback or perhaps some accretive ASG M&A will provide relief for the shares at this depressed level, and are subsequently raising our rating."
Three new "promising" regions of activity for Arc Resources Ltd. (ARX-T) are utilizing new technology to unlock resources "which should provide growth and economic value creation above investor expectations," said Raymond James analyst Jeremy McCrea.
Noting large-cap investors are "underappreciating how material these completion changes will actually be," Mr. McCrea initiated coverage of the stock by upgrading it to "outperform" from "market perform."
"With ARC recently passing the 10-year anniversary of its entry into the Montney, a lot has changed since its first well. That said, there appears to be many more changes to come over the next 10 years as the company works to expedite extracting the 35 trillion cubic feet (tcf) and 1.8 million barrels (mmbbls) of [discovered petroleum initially in place or DPIIP] resource throughout its [Northwest Environmental Business Council or NEBC] Montney properties."
Mr. McCrea focused his analysis on a trio of regions. They were:
1. Pembina Cardium. He said: "With the release of the company's 2016 budget, we believe many investors were a little surprised to see $68-million dedicated to the Cardium, especially since the play had seen very little capital in 2015 (given relative economics and opportunities in its NEBC properties). Although early, we believe some encouraging results with a new completion technique combined with infrastructure availability and reduced costs make economics in the Cardium competitive, if not higher, than NEBC – justifying the capital spend."
2. Tower Montney. He said: "With production expected to reach infrastructure capacity in the region (despite capacity increasing to 10,000 bbls/d as of 4Q/15), ARC plans to only drill 13 new wells for 2016 (down from 22 in 2015). Regardless, the play appears to be nothing short of exceptional."
3. Attachie Montney. He said: "Overall, although there is little well data at Attachie, Kelt's well suggests the geology could be very strong given approximately 36 per cent of its frac stages were not nearly as effective as they could be. As a result, we believe when ARX completes its wells at Attachie this coming year ... the play should add another strong avenue for growth."
After bumping 2015 and 2016 EPS estimates to $2.20 and $2.13 from $2.14 and $1.86, respectively, Mr. McCrea raised the price target for the stock to $24 from $20. Consensus is $23.91.
In other analyst actions:
ARM holdings PLC (ARMH-Q) was downgraded to "market perform" from "market outperform" at JMP Securities by equity analyst Alex Gauna.
Bristol-Myers Squibb Co (BMY-N) was raised to "buy" from "neutral" at Guggenheim Securities by equity analyst Charles Butler. The 12-month target price is $8 (U.S.) per share.
Bonterra Energy Corp (BNE-T) was rated new "outperform" at Raymond James by equity analyst Jeremy Mccrea. The 12-month target price is $30 (Canadian) per share.
Bonavista Energy Corp (BNP-T) was rated new "outperform" at Raymond James by equity analyst Jeremy Mccrea. The 12-month target price is $4.25 (Canadian) per share.
Bellatrix Exploration Ltd (BXE-T) was rated new "market perform" at Raymond James by equity analyst Jeremy Mccrea. The 12-month target price is $3.50 (Canadian) per share.
Bancolombia SA (CIB-N) was downgraded to "underweight" from "Equal- weight" at Barclays by equity analyst Victor Galliano. The target price is $29.50 (U.S.) per share.
Cepheid (CPHD-Q) was downgraded to "market perform" from "outperform" at Wells Fargo by equity analyst Tim Evans.
Crew Energy Inc (CR-T) was raised to "sector outperform" from "sector perform" at CIBC by equity analyst Adam Gill. The 12-month target price is $6 (Canadian) per share.
DHI Group Inc (DHX-N) was raised to "market outperform" from "market perform" at Avondale Partners by equity analyst Randle Reece. The 12-month target price is $12 (U.S.) per share.
Fidelity National Information Services Inc (FIS-N) was raised to "overweight" from "neutral" at JPMorgan by equity analyst Tien-tsin Huang. The 18-month target price is $78 (U.S.) per share.
Freehold Royalties Ltd (FRU-T) was rated new "market perform" at Raymond James by equity analyst Jeremy Mccrea. The 12-month target price is $15 (Canadian) per share.
Gibson Energy Inc (GEI-T) was downgraded to "neutral" from "outperform" at Macquarie by equity analyst Robert Hope. The 12-month target price is $19 (Canadian) per share.
Golden Leaf holdings Inc (GLH-T) was rated new "buy" at Dundee by equity analyst Aaron Salz. The 12-month target price is $2 (Canadian) per share.
Hydrogenics Corp (HYGS-Q) was rated new "market perform" at Cowen by equity analyst Jeffrey Osborne. The 12-month target price is $13 (U.S.) per share.
Johnson Controls Inc (JCI-N) was downgraded to "market perform" from "outperform" at William Blair by equity analyst Nicholas Heymann. The 12-month target price is $52 (U.S.) per share.
Mattson Technology Inc (MTSN-Q) was downgraded to "hold" from "buy" at Needham & Co. by equity analyst Y Edwin Mok.
On Deck Capital Inc (ONDK-N) was raised to "outperform" from "market perform" at Keefe Bruyette by equity analyst Julianna Balicka. The 12-month target price is $14.50 (U.S.) per share.
Painted Pony Petroleum Ltd (PPY-T) was rated new "strong buy" at Raymond James by equity analyst Jeremy Mccrea. The 12-month target price is $9 (Canadian) per share.
PrairieSky Royalty Ltd (PSK-T) was rated new "outperform" at Raymond James by equity analyst Jeremy Mccrea. The 12-month target price is $30 (Canadian) per share.
Penn West Petroleum Ltd (PWT-T) was rated new "market perform" at Raymond James by equity analyst Jeremy Mccrea. The 12-month target price is $1.75 (Canadian) per share.
Swift Energy Co (SFY-N) was downgraded to "underperform" from "market perform" at Wells Fargo by equity analyst Gordon Douthat.
TIO Networks Corp (TNC-X) was rated new "buy" at Paradigm Capital by equity analyst Kevin Krishnaratne. The 12-month target price is $2.25 (Canadian) per share.
TransCanada Corp (TRP-T) was raised to "outperform" from "neutral" at Macquarie by equity analyst Robert Hope. The 12-month target price is $52 (Canadian) per share.
Yangarra Resources Ltd (YGR-T) was rated new "outperform" at Raymond James by equity analyst Jeremy Mccrea. The 12-month target price is $1.25 (Canadian) per share.
With files from Bloomberg News