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Hewlett-Packard (Justin Sullivan/2008 Getty Images)
Hewlett-Packard (Justin Sullivan/2008 Getty Images)

Eye on Equities

RBC upgrades HP to 'outperform' Add to ...

RBC Dominion Securities Inc. analysts are feeling more confident about the future of Hewlett-Packard Co. after meetings with company executives, including with new CEO Meg Whitman.

It upgraded the stock today to “outperform” from “sector perform,” believing that expectations now are so lacklustre that it leaves a lot of room for pleasant surprises.

“Post the meetings, we are incrementally confident that HP has reset the bar low-enough where HP should meet expectations and likely deliver upside to consensus estimates,” said RBC analyst Amit Daryanani said in a research note.

“We walked away comfortable with Ms. Whitman’s strategy and believe her focus is making HP successful with the assets it has rather than implementing another transformation strategy.”

Barring a major collapse of the economy, HP should have sufficient room to achieve its fiscal year 2012 earnings per share guidance of at least $4.00, he said. Stock buybacks, revenue growth instead of current expectations for sales declines, and operating expenditure savings are all possibilities that could drive improved financial performance, he added.

Inventory issues in HP’s Imaging and Printing Group will likely take one to two quarters to work out due to the softer economic environment and the lingering effect of HP shipping more than demand dictated in fiscal 2011. But these issues are more cyclical than secular, and once resolved, RBC expects margins to revert back to the 14 per cent range in the second half of 2012.

Mr. Daryanani notes that Ms. Whitman doesn’t anticipate material acquisitions in fiscal 2012 and plans to rebuild cash during the year. HP is planning to have a more shareholder friendly capital allocation with a mix of buybacks and dividends in the future, he noted.

Upside: RBC maintained a $32 (U.S.) price target.

Raymond James Ltd. analyst Daryl Swetlishoff is taking a positive view of Canfor Corp.’s agreement this week to purchase Tembec’s southern British Columbia Interior wood products business for $60-million. “We regard these mills as Tembec’s highest quality solid wood assets,” he said, noting that Canfor expects the acquisition will help it meet demand from the rapidly growing Asia Pacific region.

Upside: Mr. Swetlishoff raised his price target by 50 cents to $16.50 and maintained an “outperform” rating.

Shares of Keegan Resources Inc. have been heavily oversold in reaction to news that the government of Ghana is poised to raise the tax rate on miners to 35 per cent from 25 per cent and may impose a 10 per cent windfall profits tax, said Canaccord Genuity analyst Nicholas Campbell. Keegan’s Esaase gold project “remains robust” even with the expected regulatory changes, he contended, adding that the company is vulnerable to a takeover bid.

Upside: Mr. Campbell maintained a “speculative buy” but cut his price target to $10 from $13.25.

Netflix Inc.’s raising of $400-million in new capital will fully fund the business for now and reduces further risk of share dilution, said Canaccord Genuity analyst Jeff Rath. But he expects shares will remain under pressure. “We continue to believe that NFLX faces numerous challenges, including subscriber losses, rising content costs and an increased competitive landscape,” he said.

Downside: Mr. Rath cut his price target by $3 to $57 (U.S.) and maintained a “sell” rating.

Pretivm Resources Inc. reported significantly increased resources and grades at its Brucejack project in British Columbia, with total resources increasing as much as 200 per cent to 5.6 million ounces under a high-grade scenario. “While the resource update was impressive, some conservatism is necessary when forecasting the eventual head grades to the mill,” cautioned CIBC World Markets Inc. analyst Brian Quast.

Upside: Mr. Quast upgraded the stock to “sector outperformer” from “sector performer” and raised his price target by $3 to $15.50.

Algonquin Power & Utilities Corp. has strengthened its growth outlook by acquiring a 10-megawatt solar project in Ontario along with a pipeline of development prospects that could eventually total 100-megawatts of additional solar capacity, said Desjardins Securities Inc. analyst Jeremy Rosenfield. “We continue to view AQN as a compelling, diversified power and utility infrastructure growth play, supported by stable earnings and cash flows from existing operations as well as an attractive 5 per cent dividend yield,” he said.

Upside: Mr. Rosenfield reiterated a “buy” rating and raised his price target by 25 cents to $7.

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