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

Following its “blowout” first-quarter results, Macquarie analyst Ben Schachter predicts Amazon.com Inc. (AMZN-Q) will become the first trillion dollar company.

“We believe that even without margin expansion in core retail, the other businesses can drive significant profit growth over the coming years and will make AMZN the first trillion dollar company,” said Mr. Schachter. “As its core 1st and 3rd party retail sales continue to take significant share from virtually all competitors, its subscription business, AWS, and advertising business are all exceeding expectations markedly.”

Maintaining an “outperform” rating, he raised his target to US$2,100 from US$1,500. The average on the Street is currently US$1,831.85, according to Bloomberg data.

The Street, as a whole, reacted positively to the results, released after market close on Thursday.

Elsewhere, Canaccord Genuity analyst Michael Graham raised his target for Amazon shares to US$1,800 from US$1,650 with a “buy” rating (unchanged), touting the impressive performance by its Amazon Web Services subsidiary.

“Thumping is the best word we can think of to describe AWS in Q1 as revenue growth accelerated for the second straight quarter,” he said. “Meanwhile, the ecommerce business continues its strong growth and brought with it the second U.S. Prime price increase in history. While several accounting changes will make comparisons slightly wonky for a few quarters, it is hard for us to identify what might be poised to change regarding AMZN’s key drivers (besides possibly an AWS price war, which shows no signs of happening) and the success the company is having both in the marketplace and with investor sentiment. While the valuation is looking somewhat more stretched over the past few months, the fundamental momentum remains about as strong as it could be.”

RBC’s Mark Mahaney bumped his target to US$1,900 from US$1,700 with an “outperform” rating.

Mr. Mahaney said: “This was a very impressive quarter, fundamentally speaking. 62 Straight Quarters (check it) of 20%+ Revenue Growth, tho Profitability has admittedly been … uneven. But now, it’s uneven UP. Amazon, along with a few other select Internet companies, is an Internet Staple. You know Consumer Staples? Internet Staples is the same thing … except with growth rates 4X, 5X … 10X higher. We do worry about Government/Political Risk, but we believe other FANGs carry greater G Risk. And AMZN’s Growth Outlook is arguably the strongest of the Major ’Net Platforms, because it faces the Largest (and Least Penetrated) TAMS – $20T Retail (10 per cent) and $1T Cloud (10 per cent)…along with $1T Advertising (30 per cent), $5T Business Supplies (10 per cent)…and maybe others.”

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Shares of Sleep Country Canada Holdings Inc. (ZZZ-T) represent an “attractive investment opportunity,” according to RBC Dominion Securities analyst Sabahat Khan, who projects “strong” annual EBITDA growth and expects multiple expansion.

Seeing “meaningful runway for further growth,” Mr. Khan initiated coverage of the Toronto-based retailer with an “outperform” rating.

“We believe that Sleep Country management has a well-tuned ‘formula’ (which includes its network expansion strategy, ongoing store renovations, and strategic use of advertising/media spend) that has helped deliver strong results to-date, and we believe the company can continue to generate SSS [same-store sales] growth at or above its stated 3-6-per-cent guidance range,” he said. “We also see runway for Sleep Country’s footprint to grow to 300-plus stores over the next 6-7 years (versus 247 as of year-end 2017).”

“We believe Sleep Country’s position as Canada’s leading specialty mattress retailer with strong brand recognition, its exposure to the mattress-in-a-box category through its Bloom brand, and a multi-year opportunity to capture sales put into play following the closure of Sears Canada, should allow the company to generate EBITDA growth in the HSD-LDD [high single digit to low double digit] range. In our view, Sleep Country’s exposure to the Direct-To-Consumer channel through Bloom, combined with consumers’ preference to test mattresses in a store before making a purchase, help limit the potential negative impact of e-commerce/mattress-in-a-box brands on the company’s growth outlook.”

Mr. Khan said a proprietary survey of 250 consumers undertaken by RBC showed the Sleep Country brand is “top-of-mind” for consumers when asked where they’d shop for a new mattress. He also highlighted an increased interest in making mattress purchases online, which points to potential for the Bloom brand.

He set a target price of $46 for Sleep Country shares. The average target on the Street is currently $42.56, according to Bloomberg data.

“We believe Sleep Country deserves a higher multiple given its 3-year EBITDA growth CAGR [compound annual growth rate] of 13 per cent (versus 0 per cent for the group of Home Furnishings/Décor Retailers), its lower leverage (0.8 times versus 1.7 times for the group of Home Furnishings/Décor Retailers), and its position as the leading mattress retailer in Canada with runway for further market share gains,” said Mr. Khan. “We believe our target valuation multiple fairly reflects Sleep Country’s strong earnings growth outlook, the potential for upside to our forecasts given the Sears Canada closure, its conservatively levered balance sheet (leverage at 0.8 times LTM [last 12-month] Operating EBITDA as of year-end 2017), our expectation for strong FCF growth, and the outlook for increased return of capital over time.”

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Though it reported a better-than-expected first-quarter profit and production results after market close on Thursday, a group of equity analysts downgraded their ratings for Detour Gold Corp. (DGC-T) in response to the company’s reduced forward guidance.

Based on a revised life of mine plan for its Detour Lake project, Detour now projects 2018 gold production of 595,000 to 635,000 ounces, falling from a previous range of 600,000 to 650,000. It all-in sustaining cost (AISC) estimate rose to $1,200 to $1,280 from a range of $1,050 to $1,150 previously.

Credit Suisse’s Anita Soni lowered the stock to “neutral” from “outperform” with a target of $15.50, falling from $16. The average on the Street is currently $20.

“DGC reported Q1/18 EPS of US$0.16, above both [Credit Suisse’s] US$0.13 and [the] US$0.14 consensus estimate,” said Ms. Soni. “The difference was largely due to better than expected grades of 1.17 g/t (above CS est. of 0.91g/t). However, the EPS beat is largely overshadowed by DGC’s revised mine plan, which is indicating higher operating costs and capex over the LOM, diminishing cash flow benefits from accelerating ounces into the near-term. As a result, we have downgraded our rating.”

Raymond James’ Farooq Hamed downgraded Detour to “market perform” from “outperform” and lowered his target to $16 from $20.

Scotia Capital’s Trevor Turnbull dropped the stock to “sector perform” from “sector outperform” with a target of $18, down a loonie.

Eight Capital’s Craig Stanley moved Detour to “neutral” from “buy” with a target of $15.20, falling from $18.

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GMP FirstEnergy analyst Michael Dunn downgraded Husky Energy Inc. (HSE-T) in the wake of the Thursday fire at its Superior Refinery in Wisconsin.

Moving the stock to “hold” from “buy,” Mr. Dunn said the accident erodes his confidence in its prior thesis of multiple reversion over time.

His target for Husky shares fell to $19.50 from $22, and now sits below the consensus on the Street of $20.16.

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Facebook Inc. (FB-Q) stock is now “too cheap to ignore despite its challenges,” said Stifel analyst Scott Devitt, who upgraded his rating to “buy” from “hold” and admitted a January downgrade of the stock was an error.

“Post first-quarter earnings, we chose to stick with our recent view on Facebook and were wrong to do so,” he said.

“We had previously maintained a Buy rating on Facebook shares for the entire tenure of our coverage until our downgrade in early January. We continue to be concerned about platform fatigue on core Facebook (not Instagram or WhatsApp) and regulation. That said, we may be getting closer to the other side in these areas of concern.”

He hikes his target on Facebook shares to US$202 from US$175. The average is US$221.65.

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Though Choice Properties Real Estate Investment Trust’s (CHP.UN-T) first-quarter operating results largely fell in line with his expectations, Desjardins Securities analyst Michael Markidis lowered his target for its stock ahead of the expected May 4 closing of its acquisition of Canadian Real Estate Investment Trust (REF.UN-T) due to the resulting dilution.

“We are taking this opportunity to update our FFO [funds from operations] outlook, which now incorporates the anticipated dilution,” said Mr. Markidis. “The 7-cent reduction to our 2019 estimate, to $1.06, is consistent with the mid-single-digit FFO dilution initially communicated by management to investors. Our NAV [net asset value] declines by 10 per cent to $11.90 from $13.20.”

“We see numerous positive aspects for this deal, including (1) greater scale and diversity, (2) enhanced managerial bench strength, (3) bolstered development pipeline, and (4) expanded market cap and float. All else equal, this should support an expansion to our target multiple to offset the above-noted dilution. At the same time, however, the trading prices of most large-cap retail-focused peers have continued to trend lower.”

Maintaining a “hold” rating for Choice units, he dropped his target to $12.75 from $14.25, which is below the average of $13.10.

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Citing “value and momentum,” RBC Dominion Securities analyst David Palmer upgraded his rating for Brinker International Inc. (EAT-N), which owns the Chili’s and Maggiano’s Little Italy restaurant chains, to “outperform” from “sector perform.”

“We believe Brinker’s current stock price and valuation at 11.5 times [next 12-month price-to-earnings] do not fully reflect our expectation for accelerating sales trends in the back half of the fiscal year and upside to consensus EPS,” said Mr. Palmer ahead of the release of the Dallas-based company release of its third-quarter financial results on May 1 before markets open.

He expects to see noticeable improvements to Brinker’s same restaurant sales growth for the quarter, adding that momentum has been sustained in April and with the expectation of new menu news in May.

“Chili’s was likely affected by weather in early calendar 1Q. We think that Chili’s SSS growth finished F3Q near 0 per cent,” said Mr. Palmer. “After a rough start in January (RBC estimates a drop of 3 per cent), we believe trends improved to slightly positive in February and finished strong in March (an increase of 3 per cent).”

Mr. Palmer raised his earnings per share projection for the quarter to US$1.03 from 99 U.S. cents, which is a rise of 10 per cent year over year. His same-store sales growth projection rose to 0 per cent from a drop of 1 per cent, exceeding the Street’s expectation of a 0.8-per-cent decline.

Also raising his fourth-quarter projections, he bumped his target for Brinker shares to US$49 from US$40. The average is $40.07.

“Despite a 24-per-cent bounce since mid-February lows, Brinker still trades at an 8-turn discount to peers on calendar 2018 earnings, the cheapest valuation of all names in casual dining,” the analyst said. “Our current target incorporates our outlook for near-to-medium term improvement, but not a full belief in a sustained sales recovery. That said, if the recent sales improvement were to sustain for a period of time, we could see further upside to our price target.”

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In other analyst actions:

BMO Nesbitt Burns analyst Alex Arfaei upgraded Bristol-Myers Squibb Co. (BMY-N) to “market perform” from “underperform.” He maintained a target of US$47, which sits below the consensus of US$60.35.

“Although we still see significant headwinds, we believe our concerns are mostly priced in, and the risk/reward is more balanced,” he said. “A bearish thesis here would mostly depend on the rate of erosion of 2L-NSCLC Opdivo sales, and more disappointing IO data. We don’t have a strong argument for either.”

Credit Suisse analyst Craig Siegenthaler raised Raymond James Financial Inc. (RJF-N) to “neutral” from “underperform” with a US$103 target, up from US$99. The average is US$105.22.

“Our Neutral rating is supported by RJF’s lower overall sensitivity to rising rates (and the short-end of the curve) than the retail broker peer group - especially with its higher deposit beta (40-50 per cent),” said Mr. Siegenthaler. “Additionally, RJF could also expand its bank via bulk transfers (like SCHW) or reduce its excess capital via buy-backs (like ETFC), however, we expect management’s conservative/long-term view on both issues to remain unchanged in 2018.”

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