Wednesday’s analyst upgrades and downgrades

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

Canaccord Genuity says Vermilion Inc. (VRML-Q) achieved a major milestone in the first quarter, "having secured FDA approval for Overa, its unique, second-generation, blood-based ovarian cancer test, and is making progress in establishing the presence of its lab subsidiary, ASPiRA Labs."

"That said, VRML is still working through the conversion of client bill contract testing as a result of its recently completed transition away from Quest Diagnostics. We continue to believe that Vermillion is uniquely positioned to meet a suite of unmet needs in women's health testing with its proprietary algorithmic tests," Canaccord analyst Mark Massaro said in a note.

While he kept his "buy" rating on the health diagnostic company, he trimmed his price target to $2 (U.S.) from $2.50 "to reflect continued multiple compression in small-cap stocks and to reflect a more conservative pacing of revenue growth in 2018 and 2019."

The consensus is $2.50, according to Thomson Reuters.

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BMO analyst Randy Ollenberger said that after an investor presentation by Encana Corp. (ECA-T; ECA-N) about its Montney assets in Western Canada, he is upgrading his target price for the company.

"The four key takeaways from the presentation were: 1) the Montney is among the lowest supply cost basins in North America; 2) the company holds significant inventory and is poised for sizeable condensate production growth, as well as natural gas growth; 3) flexible, strategic infrastructure plan in place to support future growth without Encana capital; and 4) Encana's Montney asset is nearing self-funding and is expected to generate significant free cash flow for the company even at low commodity prices," Mr. Ollenberger wrote in a notes.

"Encana also highlighted a doubling in its drilling inventory to 10,000 locations, including 3,000 well locations in the 'super rich condensate' fairway. The company expects to grow Montney production to 50,000 [barrels of oil per day] of liquids and 1 [billion cubic feet per day]  of natural gas in 2018," he said.

As a result,  the analyst is increasing his 2016 cash flow estimate to 70 cents (U.S.)/share from 69 cents and his 2017 estimate to $1.23 per share share from $1.18 "to reflect updated assumptions."

"Our estimates assume that production averages 350,003 boe/d in 2016 and 324,116 boe/d in 2017, both largely unchanged from our prior assumptions," he said.

Mr. Ollenberger maintained his "outperform rating" on Encana but boosted his target price to $9 (U.S.) from $8.

"We believe that Encana has a solid portfolio of assets and provides investors with leverage to an improving commodity outlook. At current prices, the shares reflect a 2017E Enterprise Value (EV) to earnings before interest, taxes, depreciation and amortization (EBITDA) multiple of 11.5-times, which is largely in line with its peer group median of 11.3-times. On a 2016E P/NAV [price to net asset value] basis, the company trades at a steep discount of 0.7-times versus the peer group average of 1.3-times. Our revised $9 target price implies a 2017 EV/EBITDA multiple of 12.9-times and an 11 per cent discount to our 2016 risked net asset value of roughly of $10."

The consensus is $8.39 (U.S.), according to Thomson Reuters.

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After the company posted disappointing results, BMO Research analyst Tim Long is downgrading Xtera Communications Inc. (XCOM-Q) and slashing his price target.

"Xtera reported revenue of $17.1-million (U.S.), falling short of our/consensus $23-million estimate. The miss was attributed to cash constraints, which impacted the company's ability to ship orders. Gross margins were much weaker than expected as most of the missed revenues were on higher-margin equipment business. The company defaulted on some of its debt covenants, and even though there have been some extensions granted, management has decided not to provide guidance given the uncertainty. The company is looking to raise capital via a debt deal, but could also be looking at an equity infusion," he said in a note.

As a result, he downgraded his rating on the compay to "market perform" from "outperform."

"We believe the traction in contract signings, with backlog at $95-million at the end of the March quarter and with another $120-million in committed deals, are proof points of differentiated technology. However, the balance sheet remains an issue, and we have no visibility into the timing, size, and dilution associated with a capital raise. If management is able to raise enough capital in the next month or so, we see a scenario where revenues and gross profit can be better than we model for next fiscal year, which would imply a higher stock price than where we are today. However, we cannot ignore the liquidity concerns, which we believe will keep the stock in a trading range for the near term," he said.

Mr. Long lowered his revenue and earnings per share (EPS) estimates for FY16E and FY17E to $69-million and $1.60 per share, and $100-million and 98 cents per share from $115 million and 75 cents per share and $168 million and 3 cents per share, respectively.

He cut his price target to $2.50 from $6, which assumes the company's shares trade at "an enterprise value to sales multiple of 0.85-times our estimate for optical equipment and services revenues for CY2017, with no value attributed to non-equipment-related turnkey revenues."

The consensus is $6, according to Thomson Reuters.

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Home Depot's (HD-N) first-quarter results earnings per share of $1.44 (U.S.) beat BMO Research's estimate of $1.34 and consensus of $1.35, said analyst Wayne Hood, due to "better-than-expected consolidated comparable-store sales growth of 6.5 per cent and U.S. comparable-store sales growth of 7.4 per cent.

Home Depot also raised its 2016 EPS guidance to $6.27 from the range of $6.12 to $6.18, and boosted 2016 comp-store sales growth guidance to 4.9 per cent from 3.7 per cent to 4.5 per cent.

"Weather had a positive impact on sales, pulling forward from 2Q16 approximately $250-million," Mr. Hood wrote in a note. "Monthly comps for February, March, and April were 10.2 per cent, 6.7 per cent and 4.3 per cent, respectively. We believe early May sales are stronger than the quarter ended growth rate of 3.6 per cent, and we have assumed comp-store sales growth of  about 4 per cent for the remainder of the year. We believe the stock traded down on the EPS print on profit taking and comp-store sales growth moderating to a more normalized growth rate."

"Positive take-aways include: 1) Well-balanced growth between ticket and transaction, up 2.5 per cent and 4 per cent, respectively, 2) Pro heavy categories showed strength with double-digit comps in fencing, lumber, doors, and conduit, 3)favourable expense management as SG&A dollars are expected to grow at 35 per cent of sales versus prior expectations of 45 per cent, 4) continued strong cash flow with expectations to generate $10-billion in operating cash flow this year and planned repurchase of $5-billion of common stock."

As a result, the analyst raised his 2Q16 EPS estimate to $1.96 from $1.94 and full-year 2016 earnings estimate to $6.31 from $6.22, and increased his 2017 earnings estimate to $7.29 from $7.20.

He also maintained his "outperform" rating on the stock and boosted his price target to $146, which is 20-times his 2017 EPS estimate. The consensus is $147.09.

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Avino Silver and Gold Mines Ltd. (ASM-X) first quarter sales revenues of  $2.75-million missed Cantor Fitzgerald's forecast of $5.18-million, while its EPS of nil was in line with expectations.

"The miss on revenues was due to the impact of a new concentrate sales contract in which the shipping terms deferred March sales to April. As such, the quarter encompassed sales from January

and February only. Avino Silver & Gold remains committed to achieving improved recovery rates along with controlling costs for the remainder of 2016," said analyst Rob Chang.

He maintained his "buy" recommendation and increased his target price to $3.30 from $2.90. The consensus is $2.74.

In other analyst actions:

Air Canada (AC-T) was rated new "Reduce" at Cormark Securities by equity analyst David Tyerman. The 12-month target price is $9 (Canadian) per share.

Axios Mobile Assets Corp (AXA-T) was rated new "Speculative Buy" at Beacon Secs by equity analyst Gabriel Leung. The 12-month target price is $2 (Canadian) per share.

BlackBerry Ltd (BB-T) was rated new "Underperform" at Macquarie by equity analyst Gus Papageorgiou. The 12-month target price is $8.70 (Canadian) per share.

Chorus Aviation Inc (CHR.B-T) was rated new "Buy" at Cormark Securities by equity analyst David Tyerman. The 12-month target price is $7.50 (Canadian) per share.

Celestica Inc (CLS-T) was rated new "Outperform" at Macquarie by equity analyst Gus Papageorgiou. The 12-month target price is $16 (Canadian) per share.

Celestica Inc (CLS-N) was rated new "Outperform" at Macquarie by equity analyst Gus Papageorgiou. The 12-month target price is $12.40 (U.S.) per share.

Encana Corp (ECA-N) was downgraded to "Underperform" from "Market Perform" at FirstEnergy Capital by equity analyst Michael Dunn. The 12-month target price is $6.50 (U.S.) per share.

Equinix Inc (EQIX-Q) was rated new "Buy" at Everbright Secs by equity analyst Huaping He. The 12-month target price is $394 (U.S.) per share.

Equity Residential (EQR-N) was raised to "Buy" from "Neutral" at Janney Montgomery by equity analyst Robert Stevenson. The 12-month target price is $78 (U.S.) per share.

EverBank Financial Corp (EVER-N) was raised to "Buy" from "Hold" at Sandler O'Neill by equity analyst Matthew Forgotson. The 12-month target price is $17.50 (U.S.) per share.

HollyFrontier Corp (HFC-N) was raised to "Sector Outperform" from "Sector Perform" at Scotia Howard Weil by equity analyst Blake Fernandez. The target price is $38 (U.S.) per share.

Honeywell International Inc (HON-N) was rated new "Undervalued" at WhiteSand Research. The target price is $125 (U.S.) per share.

Host Hotels & Resorts Inc (HST-N) was raised to "Market Perform" from "Underperform" at Raymond James by equity analyst William Crow.

Kinaxis Inc (KXS-T) was rated new "Neutral" at Macquarie by equity analyst Gus Papageorgiou. The 12-month target price is $51 (Canadian) per share.

Liberty Global Plc LiLAC (LILA-Q) was downgraded to "Reduce" from "Neutral" at New Street Research by equity analyst Soomit Datta. The target price is $40 (U.S.) per share.

Fidelity Southern Corp (LION-Q) was rated new "Market Perform" at FBR Capital Markets by equity analyst Christopher Nolan. The 12-month target price is $18 (U.S.) per share.

LegacyTexas Financial Group Inc (LTXB-Q) was raised to "Outperform" from "Market Perform" at FBR Capital Markets by equity analyst Christopher Nolan. The 12-month target price is $30 (U.S.) per share.

Mediagrif Interactive Technologies Inc (MDF-T) was raised to "Market Perform" from "Reduce" at Cormark Securities by equity analyst Richard Tse. The 12-month target price is $18.50 (Canadian) per share.

National Commerce Corp (NCOM-Q) was rated new "Market Perform" at FBR Capital Markets by equity analyst Christopher Nolan. The 12-month target price is $27 (U.S.) per share.

New Residential Investment Corp (NRZ-N) was downgraded to "Neutral" from "Buy" at Compass Point by equity analyst Frederick Small. The 12-month target price is $15 (U.S.)  per share.

inContact Inc (SAAS-Q) was downgraded to "Hold" from "Buy" at Lake Street Capital Markets by equity analyst Eric Martinuzzi. The 12-month target price is $14 (U.S.) per share.

Shopify Inc (SH-T) was rated new "Outperform" at Macquarie by equity analyst Gus Papageorgiou. The 12-month target price is $48 (Canadian) per share.

Sunstone Hotel Investors Inc (SHO-N) was rated new "Hold" at BB&T Capital by equity analyst Blair Brantley.

Shopify Inc (SHOP-N) was rated new "Outperform" at Macquarie by equity analyst Gus Papageorgiou. The 12-month target price is $37 (U.S.) per share.

Transat AT Inc (TRZ-T) was rated new "Buy" at Cormark Securities by equity analyst David Tyerman. The 12-month target price is $10 (Canadian) per share.

Vipshop Holdings Ltd (VIPS-N) was downgraded to "Neutral" from "Overweight" at JPMorgan by equity analyst Vivian Hao. The 12-month target price is $11 (U.S.) per share.

WestJet Airlines Ltd (WJA-T) was rated new "Buy" at Cormark Securities by equity analyst David Tyerman. The 12-month target price is $29 (Canadian) per share.

Xtera Communications Inc (XCOM-Q) was downgraded to "Market Perform" from "Outperform" at BMO Capital Markets by equity analyst Timothy Long. The target price is $2.50 (U.S.) per share.

Xactly Corp (XTLY-N) was rated new "Buy" at Lake Street Capital Markets by equity analyst Eric Martinuzzi. The 12-month target price is $12 (U.S.) per share.

With files from Bloomberg News

More to come