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Analyst upgrades and downgrades.


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

Credit Suisse has downgraded Legg Mason (LM-N) after the announcement of U.S. tax reform.

"Following U.S. corporate tax reform and 4Q marks, we raised our 2018/19 EPS estimates to $2.91 (U.S.) /$3.90 from $2.79/$3.38. Our 12-month target price remains $49 which implies 10 times our 2019 EPS estimate plus $6 in PV [present value] for its tax shield (reduced from $8). Our $49 TP [target price] implies a 15-20 per cent total return which is higher than peers but lower than our outperform-rated names. Accordingly, we are lowering our rating on LM to 'neutral' from 'outperform,' " said analyst Craig Siegenthaler.

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The median target price is $43.50, according to Zacks Investment Research.

"We estimate LM could be required to slow or turn-off its buyback if we have a severe correction in the equity markets. This would help the company to avoid hitting its 3.0 times debt covenant if earnings decline. Given that we have significant buyback activity factored in our 2018- 2020 EPS estimates, this could trigger significant negative revisions which would offset the positive defensive qualities of LM's business model (smaller equity mix, revenue share arrangements with affiliates). "


After DIRTT Environmental Solutions Ltd. (DRT-T) announced a series of changes to its board of directors and management, including the departure of president and interim CEO Scott Jenkins, Laurentian Bank Securities Equity Research reduced its target price on the stock.

Analyst Elizabeth Johnston said the impact of these changes was "negative."

"While the commentary surrounding the changes suggests no specific issue prompted the changes, we remain cautious regarding the abrupt changes to management and near-term uncertainty," she said.

"On the conference call, it was indicated that the Board identified several areas of focus for improvement (including succession, governance and strategy; though no changes to strategy are expected) which included the search for a President and CEO (process underway for over a year). Mr. [Michael] Goldstein joins the company as interim President and CEO; he may potentially take on the role permanently (no timeline given). In terms of the CFO role, Mr. [Peter] Henry has joined DIRTT to assist with the transition of a permanent CFO, with the search still ongoing (this is a key priority)."

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She kept her "buy" rating on the stock but reduced the price target to $7.50 from $8.75. The median target price is $7.38, according to Zacks Investment Research.

"This is based on 10 times (previously 12 times) our updated 2018E/2019E EBITDA [earnings before interest, taxes, depreciation and amortization]. Our target price is reduced about $0.25 as a result of factoring into our forecast annual incremental costs related to these management changes of $1.5-million (guidance is for $1.5-million-$2-million per year, for three years)," the analyst said.

"We have reduced our valuation multiple to reflect near term uncertainty, given the moving parts at the senior management level. However, we highlight that other key members of the senior management team remains in place and the company is poised to have a strong year of revenue growth. Long-term, we continue to have comfort in the growth opportunity for DIRTT," she said.

IA Securities downgraded DIRTT Environmental to "buy" from "strong buy" and cut its price target to $8 from $9.

"We remain positive on the overall direction of the business across multiple markets, particularly in healthcare, which will be a significant driver of higher margin revenue growth. We also agree with comments by Michael Goldstein on the analyst call yesterday about DIRTT being on the cusp of the next stage of its evolution, and needing to scale in new and profound ways. However, these sudden changes by the Board, specifically with senior executives being installed as "interim" and seemingly without consultation with other senior executives causes us to be a little more cautious (at least on an interim basis) as we evaluate how these changes might resonate with other key executives, partners, and clients," said IA analyst Neil Linsdell.

Raymond James downgraded the stock to "outperform" from "strong buy" and cut its price target to $8 from $10.

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CIBC is initiating coverage of Neo Performance Materials Inc. (NEO-T), a leading global manufacturer and processor of engineered and specialty materials made from rare earth elements and rare metals.

Analyst Scott Fromson gave the stock a "neutral" rating and $19 price target.

"We believe NEO has significant opportunities to grow revenues and cash flow, capitalizing on supportive underlying market dynamics. Our forecast implies two-year CAGRs [compound annual growth rate] of 4 per cent for revenues and 6 per cent for EBITDA; we could see increasing our estimates and valuation metrics should NEO report a couple of strong quarters as a new public company. At the current valuation, we believe risk and reward are balanced; we are comfortable waiting for better visibility into NEO's execution of its growth strategy. Our view is further tempered by NEO's exposure to China, by far the world's largest rare earths player," he said.

"Industry exposure includes automotive, aerospace, consumer electronics, IT and energy. NEO was a division within Molycorp, emerging after a reorganization process and two years under Oaktree Capital (a 68.5 per cent shareholder)."

"NEO trades at 7.2 times EV [enterprise value]/EBITDA and 16.9 times P/E [price to earnings], on our 2017 estimates. Our $19 price target is based on the average of 7.5times EV/EBITDA, 15 times P/E and 7 per cent free cash flow yield, on our 2018 estimates."


Analysts are now coming out with their ratings and price targets for Nutrien Ltd. (NTR-N; NTR-T), the combination of Agrium Inc. and Potash Corp. of Saskatchewan.

CIBC started coverage with an "outperformer" rating and a price target of $62 (U.S.). The median target price is $50 (U.S.), according to Zacks Investment Research.

" Nutrien has the long-term goal of de-commoditizing by focusing on higher share of farmer wallet by expanding Retail geographical presence in U.S., Canada, Brazil, Argentina and Australia. We don't think it is unreasonable for Nutrien to increase its Retail footprint to a third of the U.S. market versus 19 per cent currently via acquisitions and Greenfields," said analyst Jacob Bout.

"The precision agriculture market should grow at a CAGR of [more than] 10 per cent and specialty products could double in size by 2025. Farmer relationships are what separate NTR from all other precision ag. providers. Recent mega-mergers (DowDupont, Monsanto/Bayer, etc.) should lead to several opportunities for NTR in the specialty/crop chemistry space."

Laurentian Bank rated Nutrien a "buy" with a price target of $61.

BMO rated the company a "market perform" with a $54 price target. "The merger creates a powerhouse integrated fertilizer producer and farm input retailer, and Nutrien will have ample opportunities to seize on capital allocation and synergy prospects. We believe, however, the bull case is already priced into the stock (full synergies, attractive capital allocation, 10 times EBITDA multiple) and we're not yet sold that reversion to the mean on ag/ potash will occur."


IA Securities initiated coverage of Superior Plus Corp. (SPB-T), a diversified Canadian company that operates two business segments: Energy Distribution and Specialty Chemicals. The stability from both businesses allows the company to pay a stable monthly dividend.

Analyst Elias Foscolos rated the company a "buy" with a $14 target price. The median target price is $13.75, according to Zacks Investment Research.

"Superior's Energy Distribution and Specialty Chemicals business segments are both very stable in terms of annual EBITDA contribution, providing 61 per cent and 39 per cent, respectively. Energy Distribution experiences seasonality due to increased demand for propane and heating oil in the winter months. However, on an annual basis, consumption for propane and fuel oil is quite predictable. Within the company's Specialty Chemicals segment, its sodium chlorate business is primarily tied to pulp and paper demand, while its chlor-alkali business is predominantly impacted by oil," he said.

"Superior operates two stable businesses, which provide sufficient cash flow to pay the generous $0.72 annualized dividend (6.1 per cent yield). The company posted solid Q3/17 results and we anticipate continued positive momentum as its recently closed Canwest acquisition should add a significant EBITDA tailwind in 2018. Our $14.00 per share target equates to a total return of 23.9 per cent (including dividends) resulting in our initial 'Buy' rating."


Raymond James downgraded UrtheCast Corp. (UR-T) after the company was able to deal with potential covenant issues.

"Management has successfully navigated potential covenant issues arising from expected lower revenue/Adj. EBITDA [adjusted earnings before interest, taxes, depreciation and amortization] in 2017 but 2018 is not out of the woods yet in our view as it needs Deimos to rebound strongly as well as replacing the EBITDA contribution from the large Engineering services contract that is winding down," said analyst Steven Li.

"Recall last quarter, mgmt. lowered 2017 guidance to revenue of $40-million and Adj. EBITDA of -$5-million (from revenue of $52–$60-million and Adj. EBITDA $7–$12-million) due to an unexpected delay in the award of a sizeable contract by one of UR's largest EO customers (expected 1Q18). As a result, UR obtained a covenant waiver for 2017 from its lender Banco de Sabadell S.A. with respect to its €25-million loan as well as a 6 month deferment of its required December 2017 principal payment obligation. This covenant test is once a year and will be revisited in 2018. While we don't know the actual ratios that need to be complied with, we believe at a minimum Deimos has to rebound in 2018 but importantly the company has to replace the EBITDA from the large engineering services contract that winds down in 1H18 timeframe (been contributing about $9-million revenue/quarter). Construction revenues from SAR XL contracts can help in that respect but the customer they have announced still awaits the necessary export applications and the final approval of the financing condition by the customer's government agency," he said.

As a result, he downgraded the company to "market perform" from "outperform" and cut its price target to $1.10 from $1.75.

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