Inside the Market’s roundup of some of today’s key analyst actions
RBC downgraded Noble Energy Inc. (NBL-Q) to “sector perform” from “outperform,” believing that Chevron Corp.’s US$13-billion deal (including debt) to acquire the company is “as good as it gets.” Analyst Scott Hanold cut his price target on Noble to US$10.50 from $13.
“CVX’s acquisition of NBL at a small premium was surprising given that NBL is on the cusp of delivering a long awaited free cash flow increase,” Mr. Hanold said in a note. “This highlights fiscal risks that could be associated with the Eastern Med and the DJ assets.”
“We do not expect competing offers and if CVX needs to sweeten the deal it likely is relatively small,” he said.
He noted that Noble management commented that it had evaluated strategic alternatives like other mergers, acquisitions, staying stand-alone, and divestitures. But its board believed the Chevron offer was the best option on the table.
Under the deal, subject to shareholder approval, Chevron would acquire Noble shares in an all-stock transaction. Noble shareholders would receive 0.1191 CVX shares, a 7 per cent premium to Noble’s prior close and 12 per cent premium to the average 10-day price. Noble shareholders will own 3 per cent of the combined company.
The median analyst target is $12, according to Refinitiv Eikon.
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Industrial Alliance Securities analyst Naji Baydoun increased price targets on nearly every stock in his independent power producer and infrastructure coverage area to reflect expectations that interest rates will stay low right through 2022.
Both the U.S. Federal Reserve and the Bank of Canada have recently indicated that monetary policy is expected to remain accommodative for some time to allow overall economic activity to recover from the impacts of the coronavirus pandemic. Market expectations have rapidly shifted and now point to expectations of low interest rates over the next 24 months, noted Mr. Baydoun.
Low interest rates should support the overall growth outlook for companies in the power and infrastructure sectors, as large-scale capital-intensive projects can now benefit from lower cost financing. Meanwhile, expectations for low rates should be a tailwind for sector valuations, and will likely continue to drive strong stock price performance and valuation multiple expansion over time, according to Mr. Baydoun.
Among the more significant price target hikes were to Boralex Inc. (BLX-T) (to $38 from $32, with a Buy” rating); Brookfield Renewable Partners LP (BEP-N) (to US$58 from $50, with a “buy” rating); and Northland Power Inc. (NPI-T) (to $37 from $31, with a “hold” rating).
“Overall, companies within the sector (1) continue to exhibit healthy earnings, cash flow, and dividend growth potential, (2) are trading slightly above historical valuation levels following recent share price rebounds, and (3) continue to offer attractive potential risk-adjusted returns to our price targets,” Mr. Baydoun said in a note.
CIBC Tuesday also raised its target price on Brookfield Renewable Partners to US$55 from $49.
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BMO analyst Ray Kwan upgraded his rating on Seven Generations Energy Ltd. (VII-T) to “outperform” from “market perform” but maintained a price target of $4.50.
“Taking a longer-term view, we believe the shares of Seven Generations are inexpensive, especially considering the company’s improving free cash flow/margin profile,” he commented.
The median analyst target is $5.
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Atb Capital Markets upgraded Halliburton Co. (HAL-N) to “sector perform” from “underperform” and raised its target price to US$14.75 from $11. At least three other price target hikes were made from other brokers, including Evercore ISI which raised its target to $20 from $9.
Atb Capital Markets cited Halliburton’s second quarter earning release for the upgrade and higher target, saying strong cost controls and a favourable business mix lead to better than expected margins and results that came in above the consensus.
“HAL’s stock outperformed peers in Q2/20, owing to its high beta to rising oil prices as WTI appreciated ~94%. We expect WTI to be range bound ~$40/bbl in Q3/20, and as such, commodity prices may not offer a near-term catalyst."
“Also, while HAL outperformed on Monday after reporting a 38% EBITDA beat, given that it was up only 2.5% leads us to believe that the stock may already have been reflecting an upward estimate revision. Nonetheless, with the revised price target, the stock offers 11% upside, justifying a Sector Perform rating.”
The median analyst target is now US$14.75.
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JMP Securities analyst Joseph Osha downgraded his rating on Tesla Inc. (TSLA-Q) to “market perform” from “market outperform,” believing any progress the company discusses Wednesday on its earnings call is already reflected in the stock price.
“The company’s valuation now slightly exceeds the $1,500 price target that we established recently, and we believe that any intermediate-term success that TSLA might discuss during its earnings call tomorrow is now fairly reflected in the stock price. We continue to believe that TSLA can become a $100 billion car company by 2025, but we cannot arrive at a reasonable basis for arguing that the stock should be valued above current levels, even considering our fundamental outlook,” Mr. Osha said.
The median analyst target price is US$782.50.
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CIBC analyst Todd Coupland raised his target price on Shopify Inc. (SHOP-N) to US$1,040 from $740 while reiterating a “neutral” rating.
His target now represents a price to estimated 2021 sales multiple of 40 times, up from 28 times, due to e-commerce and online sales accelerating because of the pandemic.
Shopify will report second quarter results on July 29. “It was a strong quarter for e-commerce including Shopify and its merchants. The COVID-19 pandemic has pulled forward online purchasing that has positively impacted Shopify and the over one million merchants on its platform. We recommend investors hold Shopify into this quarterly report,” Mr. Coupland commented.
The median target is US$812.50.
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In other analyst actions:
J.P. Morgan raised its price target on Canadian Natural Resources Ltd. (CNQ-T) to C$34 from $32. It has an “overweight” rating on the stock.
TD Securities downgraded Lundin Mining Corp. (LUN-T) to “hold” from “buy” but raised its target price to C$9.50 from $9. Elsewhere, Haywood Securities raised its target price to $10 from $8.50 and National Bank hiked its target to $8.50 from $7.75.
National Bank of Canada upgraded Capstone Mining Corp. (CS-T) to “outperform” from “sector perform” and raised its target price to $1.40 from 60 cents.
Canaccord Genuity downgraded Sandstorm Gold Ltd. (SSL-T) to “hold” from “buy” but raised its target price to $13.50 from $13.
Canaccord Genuity (SSRM-T) upgraded SSR Mining Inc. (SSRM-T) to “buy” from “hold” and raised its target price to $35 from $32.
National Bank of Canada downgraded Teck Resources Ltd. (TECK-B-T) to “sector perform” from “outperform” and cut its target price to C$17 from C$18.50.
National Bank of Canada raised its price target on First Quantum Minerals Ltd. (FM-T) to $16.25 from $11.50.
HSBC downgraded Carnival Corp. (CCL-N) to “hold” from “buy” and cut its target price to US$15.3 from $15.9.
Canaccord Genuity upgraded Coeur Mining Inc. (CDE-N) to “buy” from “hold” and raised its target price to US$8 from $6.
Piper Sandler upgraded Diamondback Energy Inc. (FANG-Q) to “overweight” from “neutral” and raised its target price to US$58 from $40.
Canaccord Genuity downgraded Pan American Silver Corp. (PAAS-Q) to “hold” from “buy” and raised its target price to US$36 from $31.
With files from Reuters and Roma Luciw
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Darcy Keith