Inside the Market's roundup of some of today's key analyst actions
Citing its recent strong share performance and "weaker" relative valuation, Canaccord Genuity analyst Tony Lesiak downgraded his rating for Goldcorp Inc. (G-T, GG-N) to "hold" from "buy" following its 2018 Investor Day on Tuesday.
The Vancouver-based company, currently the world's fifth-biggest gold miner by market value, reiterated its previously announced 20/20/20 plan, which involves a 20-per-cent increase in gold production (to 3 million ounces) and 20-per-cent rise in reserves (to 60 million ounces) with a 20-per-cent decline in all-in sustaining costs (to approximately $700 U.S. per ounce) by 2021. The plan is driven by both increased gold production and a focus on cost efficiencies and productivity improvements.
Goldcorp also reported preliminary gold production for the fourth quarter and full year 2017 of 646,000 and 2,569,000 ounces, respectively, exceeding the midpoint of gold production guidance of 2,500,000 ounces. Full-year AISC are expected to be in line with the improved midpoint guidance of $825 per ounce.
"Gold production came in 3 per cent better than plan with Q4 modestly better than our estimates driven by Cerro Negro and PV. Red Lake disappointed," said Mr. Lesiak. "Long-term production guidance was maintained although our estimates are currently 2 per cent below guidance with mine specific commentary suggesting there is less conservatism built in now. Four-year AISC guidance was also maintained despite better by-product pricing assumptions and lower sustaining capital which should have lowered costs by $50 per ounce. The disconnect appears to reflect cost creep and mining dilution."
Based on the announcements, Mr. Lesiak lowered his 2018 earnings per share projection to 39 cents (U.S.) from 41 cents. He maintained his 2019 expectation of 76 cents.
With that change, his target for the stock fell to $21 (Canadian) from $21.50. The analyst average price target is currently $22.13, according to Bloomberg data.
"Our target remains predicated on a 0.95-times multiple to our forward curve derived operating NAV [net asset value] of $25.34 (from $25.68) minus net and other items," he said. "Our valuation continues to assume 39 per cent conversion of resources. Goldcorp has outperformed its peers by 17 per cent on three months and now trades at a 43-per-cent premium to the broader peer average on NAV. Production is also expected to soften in the coming quarters. Given the strong share performance and weaker relative valuation we are revising our rating."
After the Toronto-based miner reported stronger-than-anticipated fourth-quarter financial results on Tuesday, he raised his rating for its stock to "buy" from "hold."
Production for the quarter of 228,000 ounces exceeded Mr. Lesiak's estimate of 215,000 ounces. For the year, the company logged annual production of 882,000 ounces, which was the top end of guidance (845,000 ounces to 885,000 ounces). Management expects total cash costs are expected to around the mid-point of guidance (approximately $760 U.S. per ounce).
For 2018, management expects similar production to 2017 within a range of 850,000 ounces to 900,000 ounces with total cash costs rising "modestly" to a range between $750 and $800 per ounce.
"The strong balance sheet ($790-million in cash) is expected to see a modest drawdown in 2018 to fund the development of Saramacca and the Essakane Heap Leach project which appears to have been given Board Approval," said Mr. Lesiak. "Capital costs estimates for 2018 for both projects (no reserves yet) are well above our estimates. The good news is that both projects still have potential strong IRR's and are being fast tracked to production in 2019 which could see the annual production run-rate exceed 1.0Mozs again. Management also announced an exploration budget increase which we view favourably given the generative success the company has had of late."
Though he lowered his 2018 and 2019 EPS projections for the company to 10 cents (U.S.) and 17 cents, respectively, from 12 cents and 22 cents, Mr. Lesiak's target for the stock increased to $9 (Canadian) from $8.75. The average on the Street is $9.14.
"We are revising our target price … on the derisking of the Essakane Heap Leach project and strong operating results," he said. "Our target remains predicated on a 0.8-times multiple to our forward curve derived operating NAV of $9.88 per share plus net cash. In the past three months IMG has underperformed its peers by 5 per cent (excluding Centerra and Eldorado). Given the share underperformance and the improved projected return to our target, we are revising our rating."
Barclays analyst Grant Hofer named Enerplus Corp. (ERF-T, ERF-N) his top Canadian E&P pick, noting it demonstrates strong operating momentum and offers conservative guidance and under-levered balance sheet.
He raised his target for its stock by a loonie to $18 with an "overweight" rating (unchanged). The average is $17.27.
At the same time, Mr. Hofer upgraded Whitecap Resources Inc. (WCP-T) to "overweight" from "equalweight" with a target of $12, up from $11. The average is $12.92.
He cut ARC Resources Ltd. (ARX-T) cut to "equalweight" from "overweight" and lowered his target to $16 from $19. The average is $18.83.
Elsewhere, Raymond James' Kurt Molnar called Enerplus' increasing production and oil leverage "plainly a very appealing combination."
On Tuesday, the Calgary-based company announced fourth-quarter production of 88,600 barrels of oil equivalent per day, exceeding Mr. Molnar's projection of 84,900 barrels. He pointed to liquids of 46,750 barrels per day (versus his 44,400 barrel estimate) as the primary driver of the production beat.
"To put things into even better context, 4Q17 average production exceeded the average production estimate we were previously carrying for 2018," he said. "Accordingly, we have increased our production estimates for each of 2018/2019 where the entirety of the production lift is on the liquids side of the business."
"Our 2018 new estimates still remain within the range of Enerplus guidance while we continue to highlight that Enerplus' balance sheet strength allows for the consideration of either meaningful acquisitions and/or simply increased development spending. Ignoring that potential, the combination of more production and more liquids has our target price increase from $16.75 to $18.25 while we reiterate our Outperform rating."
Though he deemed its fourth-quarter results "slightly positive" based on a gradual improvement in recovery, Desjardins Securities analyst Raj Ray downgraded TMAC Resources Inc. (TMR-T) as he feel it's unclear whether planned improvements will enable it to reach design throughput and recovery at its Doris mine.
"Hence, we remain conservative for 2018 with respect to mill throughput and gold recovery," said Mr. Ray, moving the stock to "hold" from "buy."
"The stock price is up 50 per cent since we launched coverage on Nov. 27 compared to the GDXJ, which is up 9 per cent over the same period; we are therefore moving to a Hold until we see further improvement in process parameters."
On Tuesday, Toronto-based TMAC reported quarterly production of 22,220 ounces, exceeding Mr. Ray's estimate of 19,400 ounces. He said the beat was driven primarily by higher grade of 13.7 grams per ton (versus his estimate of 12.5 g/t) processed during the quarter.
Full-year 2017 production of 56,600 ounces met the company's guidance of 50,000 to 60,000 ounces.
"Process recovery in 4Q17 was 72 per cent (we had estimated 70 per cent), a gradual improvement over prior quarters," the analyst said. "Although recovery averaged 76 per cent after October, it is still well below the 91-per-cent target. The company has said that two of three identified mill upgrades have been addressed and a third key upgrade related to the cyclone distributor head is expected to be addressed in 1Q18.
"Balance sheet [is] steady despite higher capex guidance for 2018. TMAC has guided for 2018 capex of $51-million—significantly higher than our prior estimate of $22-million. However, with $42-million in cash at the end of 4Q17, we are not overly concerned with TMAC's 2018 balance sheet."
Mr. Ray maintained a target for its stock of $12.25, which is higher than the average of $11.89.
"We believe that additional upside will be contingent upon the company achieving a steady state operation at Hope Bay," he said.
Though he believes its fourth-quarter operational results were "impressive," BMO Nesbitt Burns Andrew Breichmanas is waiting for growth from Roxgold Inc. (ROXG-T).
Accordingly, he lowered his rating for its stock to "market perform" from "outperform."
"Roxgold announced solid Q4/17 results, capping an impressive first full year of operations," said Mr. Breichmanas. "However, guidance suggests that this year will represent something of a transition while the Bagassi South expansion is completed to deliver production growth in 2019. While catalysts may come from exploration programs, the high quality of existing resources makes delivering meaningful results challenging."
He lowered his target to $1.75 from $2. The average is $2.02.
Apple Inc.'s (AAPL-Q) latest iPhone cycle is likely to be a disappointment for investors, according to Longbow Research analyst Shawn Harrison, handing the U.S. tech giant a rare downgrade based on what he sees as "lukewarm" demand.
Moving its stock to "neutral" from "buy," he reduced his fiscal 2018 iPhone unit shipment forecast to 233 million from 248 million, calling the cycle "good, not great." The Street's expectation is 239 million.
He did not specify a target price for the stock. His previous target was $175 (U.S.), while the average among analysts covering Apple is $193.55.
Elsewhere, Bank of America Merrill Lynch analyst Wamsi Mohan raised his target price to a Street-high $220 from $180.
"In 2018, we remain bullish on potential for cash repatriation, lower tax rates, and the potential for positive estimate revisions heading into 2019," said Mr. Mohan, who has a "buy" rating for the stock.
Touting a "high risk, high reward opportunity," Clarus Securities analyst Jamie Spratt upgraded Torex Gold Resources Inc. (TXG-T) to "speculative buy" from "hold."
"We believe TXG faces an elevated risk level as the company works around the Los Mineros blockade to restart the operations at ELG," he said. "However, we see a deep value investment opportunity with the stock trading at 3.6 times 2019 estimated (full run rate) price-to-cash flow and 0.42 times net asset value, or a greater-than 40 per cent and a greater-than 50-per-cent discount to peers trading at an average of 6.4 times and 0.89 times, respectively. While the potential for turbulence remains, we believe investors willing to accept high risk but high reward opportunities should be buying the stock given the progress to date and the 25-per-cent return on our target price which is based on discounted multiples. We believe this is a highly discounted price for a high quality asset that is unlikely to stay at this discounted valuation in the medium to long-term."
He raised his target for the stock to $15.75 from $15.25. The average is $19.38.
In other analyst actions:
Macquarie analyst Michael Siperco upgraded the recommendation on Eldorado Gold Corp. (ELD-T, EGO-N) to "outperform" from "neutral" with a target of $2.50, rising from $2. The average on the Street is $2.12.
Laurentian Bank Securities analyst Ryan Hanley downgraded Argonaut Gold Inc. (AR-T) to "hold" from "buy" with a $3 target (unchanged). The average is $3.96.
Cormark Securities analyst Jason Zhang downgraded Calfrac Well Services Ltd. (CFW-T) to "market perform" from "buy." Mr. Zhang raised his target to $7.50 from $7. The average on the Street is now $7.25.