Friday’s analyst upgrades and downgrades

Inside the Market’s roundup of some of today’s key analyst actions.

Cogeco Communications Inc. (CCA-T) reported strong financial results and growth of net subs in both Canada and the U.S. on Thursday, prompting analyst Aravinda Galappatthige of Canaccord Genuity to upgrade shares of the cable and internet provider to a “buy” from a “hold.”

“The result was particularly impressive given COVID-19. In addition, the company has reinstated F20 guidance calling for low single-digit revenue and EBITDA growth as well as mid-single digit FCF growth. This compared with our pre-Q3 expectations of flat to low single digit declines in revenue and EBITDA and only 1% growth in FCF.”

Mr. Galappatthige said Cogeco’s management indicated the fourth quarter looked promising, with the pandemic leading people to work from home. “We believe that with increased broadband usage and the need for capacity in the current WFH environment, there is a genuine opportunity for Cogeco Connexion to more substantially exploit its meaningful speed advantage in its territories.”

To reflect the improved outlook, he hiked his target to $108 from $96 a share.

Elsewhere, CIBC raised its target on Cogeco Communications to $111 from $110. And TD Securities hiked its target to $110 from $105.

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BMO initiated coverage on Cargojet Inc. (CJT-T) with a $200 price target – the highest on the Street - and an “outperform” rating, calling it a well-managed company holding a dominant market position in Canada with “strong, durable competitive advantages.”

“CJT stands to benefit from cyclical and secular demand growth drivers as well as company-specific opportunities to improve asset utilization in the coming three to five years, supporting significant expansion in profitability and free cash flow,” analyst Fadi Chamoun said.

The median price target among analysts on Cargojet is $150, according to Refinitiv Eikon data. There are seven buys, five holds and no sell ratings currently on the stock.

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Credit Suisse is stepping to the sidelines when it comes to recommending shares of Netflix Inc. (NFLX-Q), which reported its latest earnings late Thursday. While headline profits beat Street expectations, its forecast for new subscribers for the third quarter was well below Street expectations.

Credit Suisse analysts led by Douglas Mitchelson downgraded their rating to “neutral” from “outperform,” citing what they perceive to be as a lack of near-term catalysts. They have a price target of US$525.

“Serious investor concerns regarding the “3 C’s” (competition; content quality; cost of content) have waned, appropriately so in our view, while Netflix has benefitted from a particularly strong content slate and the COVID crisis has been a significant accelerant for the shift to streaming globally. Looking forward, we see: (1) subdued subscriber growth in 2H20 due to the stay-at-home pull forward into 1H20 (26m 1H net adds vs. 12m last year), and unlike the similar 1Q20 pull-forward concerns, there is evidence sub growth has already slowed based on the weekly subscriber chart in management’s 2Q letter; (2) obviously difficult 1H21 comparisons, exacerbated by mgmt. indicating top hits in the 2021 content slate will be 2H-weighted, competing content will have re-ramped (sports, theatrical releases, fresh linear content), and we expect price increases to kick in late 2020 to mid-2021 (the last was early/mid 2019), likely further hampering net adds (mgmt. is targeting revenue growth, but investors are targeting subscriber growth); and (3) investor interest in Netflix as a stay-at-home “winner” might taper off with countries reopening.”

"Our long-term view of Netflix as the clear global subscription streaming leader is unchanged, but to shift the valuation paradigm from these levels would require, in our view, investors: (1) adding mobile to TAM (Total Available Market); (2) assuming Netflix will be able to bundle and sell more products with its service; or (3) anticipating robust free cash flow and its deployment,” Credit Suisse said.

Many other analysts expressed a more upbeat tone on the Netflix earnings. At least 10 brokerages raised their price targets on the company. They noted that demand for its streaming service was skewed toward the first half of the year as COVID-19 forced people around the world to stay at home.

Netflix has added nearly 26 million subscribers in the first half alone, compared with 28 million it added for the whole of 2019.

“We view the sub guide as conservative and believe the current dearth of viewing options, including lack of sports, positions Netflix as the go-to option,” Piper Sandler analysts said.

Netflix shares, which are among the biggest gainers this year, plunged more than 8% in pre-market trading on Friday morning, after the company said it expected to add 2.5 million new paid streaming customers globally, roughly half of what analysts were expecting.

The median price target among analysts is, as of Friday morning, US$525, according to Refinitiv Eikon data. That’s up from $485 one month ago.

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Analyst Mark Mihaljevic from RBC Capital Markets upgraded shares of Hecla Mining Co. (HL-N) to “sector perform” from “underperform,” saying the risk/reward profile is more balanced because of recent operational and financial improvements.

He also raised his price target to US$4.50 from $2.50 “to reflect (1) our updated silver price forecasts; (2) higher target multiples more in line with historical ranges and peer averages; and (3) other modest changes to our operational/financial forecasts.”

Mr. Mihaljevic outlined several bear/bull cases for the U.S. silver producer with operating mines in Alaska and Idaho. He noted several positive operational factors that are not fully appreciated by the market and that Hecla’s financial position has “markedly improved” over the last few quarters.

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In other analyst actions Friday:

RBC raised its target price on Fiera Capital Corp. (FSZ-T) to $12 from $9.

Credit Suisse raised its target price on Hydro One Ltd. (H-T) to $28 from $26.

RBC raised its target price on Sprott Inc. (SII-T) to $57 from $40.

Credit Suisse raised its price target on Tesla (TSLA-Q) to US$1,400 from $700 and maintained a “neutral” rating.

With a file from Reuters

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