SNC-Lavalin offices in downtown Montreal in this file photo.Mario Beauregard
Inside the Market's roundup of some of today's key analyst actions. This file will be updated often during the trading day so check back for new details.
The Canadian government appears to have backed off of a proposed policy that could have barred SNC-Lavalin Group Inc. from bidding on federal government contracts, easing the troubles stemming from the company's corruption scandal, said AltaCorp Capital analyst Chris Murray.
"While the change in the framework does not remove the legal issues facing the company, it does offer a more normalized risk profile and one we believe that offers a return to a more normal evaluation," Mr. Murray said.
In March 2014, Public Works and Government Services Canada amended its penalties for companies convicted of fraud, bribery or similar charges anywhere in the world.
The Integrity Framework would prohibit offending companies from doing business with the federal government for 10 years.
The policy had clear implications for SNC-Lavalin, which has been the subject of various corruption probes, culminating in fraud and corruption charges laid by the RCMP in February for alleged crimes committed in Libya between 2001 and 2011. SNC-Lavalin said the employees involved have been fired and the company intends to plead not guilty.
Some business groups have criticized the Integrity Framework as being too punitive. And the latest federal budget seems to acknowledge that the new rules could have unintended consequences, Mr. Murray said.
In the budget document, the federal government indicated that it would consider changes and would introduce a new proposal, Mr. Murray said. He said he foresees "more moderate framework, greatly reducing the risk of a potential debarment for issues beyond the control of today's management and subsequently reducing the risk of the company continuing as a going concern."
Meanwhile, SNC-Lavalin's outlook is also enhanced by rising expectations for the potential sale of the Highway 407 toll road, Mr. Murray said. He increased his estimate for the fair value of the asset to $18.12 per share from $14.32 per share.
"We believe the announcement of a sale of Highway 407 remains a key catalyst for share prices this year," he said.
He upgraded the stock to "outperform" from "sector perform," and raised his target price to $51 (Canadian) from $43. The average analyst price target for SNC-Lavalin over the next year is $47.81.
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Ahead of Apple Inc.'s second-quarter earnings report coming after the closing bell, Brean Capital believes the Street isn't nearly optimistic enough on its medium-term prospects.
According to analyst Ananda Baruah, as long as the smartphone market grows by 10 per cent per year and Apple maintains its 17-per-cent market share, analysts are underestimating total iPhone shipments through 2017.
He also believes company will sell more of its iPhone 6 Plus models – which have a very high gross margin – than the Street expects.
Aggressively returning capital to shareholders will remain a key tenet of Tim Cook's strategy, the analyst said.
"Additionally, we believe AAPL will continue to use capital return materially the next few years and that this can both catalyze and provide a floor under the stock," he said. "We anticipate AAPL will continue to reduce share count by 10 per cent annually and increase its 1.5 per cent dividend by 10 per cent annually for the foreseeable future."
Mr. Baruah initiated coverage on Apple with a "buy" rating and price target of $160 (U.S.).
The average analyst price target is $143.38.
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Desjardins Securities analyst Maher Yaghi thinks CGI Group Inc. stock is now fully valued, as price appreciation has pushed valuations to historic highs.
"Although our view is that CGI generates significant cash flows, we note that share price appreciation has pushed its valuation high versus other firms in the space," said Mr. Yaghi. "The spread between CGI's valuation relative to peers has narrowed significantly over the past year and is now close to its peak over the last three years. While our view of the company's ability to deliver long-term bottom-line growth to shareholders through margin improvement and accretive acquisitions has not changed, we believe a few quarters are required before CGI can re-establish a revenue growth trajectory. The risk to our neutral call in the short term is a resumption of M&A activity."
Despite the company's "strong willingness and capacity" to acquire other firms, Mr. Yaghi believes competing bids could push prices to a point in which deals are less accretive to CGI. He said future mergers and acquisitions activity has already been priced into the shares,
He raised his price target to $53 from $50.50 (Canadian) and maintained his "hold" rating.
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West Fraser Timber Co. Ltd. beat market forecasts in the first quarter due largely to better-than-expected performance from its lumber segment, said CIBC World Markets analyst Mark Kennedy.
It reported an adjusted earnings before interest, taxes, depreciation, and amortization of $173-million, an increase of 10 per cent from the fourth quarter of 2014. Mr. Kennedy is forecasting an EBITDA improvement from $621-million in 2014 to $634-million in 2015. He's also projecting free cash flow to decline slightly from $467-million to $439-million in 2015, due largely to maintenance capital expenditures.
Despite beating market expectations, Mr. Kennedy is lowering his price target for the stock as he sees mid-cycle lumber pricing, projected to be $380 (U.S.) per FBM (Foot, Board Measure) for Western Spruce-pine-fur, to be unachievable before 2017.
He lowered his price target to $70 from $76 (Canadian). The analyst consensus price is $74.38, according to Thomson Reuters.
The analyst maintained his "sector performer" rating.
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Canaccord Genuity analyst Camilo Lyon feels the recovery of Steven Madden Ltd. is "firmly underway."
The company reported higher-than-forecasted first-quarter earnings per share of 32 cents (U.S.) while delivering 6.3-per-cent sales growth year over year, including a 4.5-per-cent increase in wholesale and 18.4 per cent in retail
Mr. Lyon said a key metric is "exceptionally strong" retail comparable same-store sales, increasing 11.6 per cent from 2014 and beating his estimate by 7 per cent.
"This further emboldens our conviction in SHOO's recovery as we continue to believe that strong performance in retail will translate into accelerated wholesale growth in second half," he said. "We attribute this success in retail to strong transitional product (fashion sneakers, closed-up casuals, sandals) that is perfectly aligned with the emerging fashion trends."
Though delivery and order delays caused by the port strike on the U.S. West Coast will cost the company approximately $10-million in wholesale sales in the second quarter, Mr. Lyon expects product flow to return to normal in the third quarter "with minimal markdown risk associated with the trapped inventory.
He added: "We believe SHOO is managing its inventory well given the West Coast port delays."
The analyst expects the company to benefit from sales growth from a pair of recently acquired footwear brands, Blondo in the second half of 2015 and Dolce Vita in 2016, and other profitability improvements.
While maintaining his "buy" rating, he raised his price target to $50 from $43 (U.S.). The analyst consensus is $41.60.
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Canaccord Genuity analyst Bobby Burleson projects diminishing long-term growth expectations for 3D Systems Corp, downgrading the stock to "hold" from "buy."
On April 24, the company warned that its first-quarter results would not meet expectations, blaming foreign exchange fluctuations and lower customer demand.
That shortfall and lower expectations for growth beyond 2016 caused Mr. Burleson's rating change. He believes this is the case for non-metal additive manufacturing companies, noting he also downgraded Stratasys Ltd. (also from "hold" to "buy") under the same rationale.
"Underpinning our downgrade is our view that growth for professional and production grade printers appears to be slowing," he said. "We believe customers are scrutinizing their purchasing decisions more closely following a period of accelerating adoption, especially for non-metal processes. We also think that HP's growing marketing presence (no machine until late 2016) is causing some dissonance in the market and is being used as an excuse to delay decisions."
He added: "We believe customer projects that are more speculative and don't have a very clear near-term ROI could be delayed until the customer at least gains a better understanding of what HP will have to offer in terms of speed, cost of ownership, etc."
Mr. Burleson dropped his price target to $27 from $50 (U.S.). The analyst consensus is $34.56.
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In other analyst actions:
Procter & Gamble Co. (PG-N) was lowered to "underperform" from "outperform" at CLSA.
Texas Instruments Inc. (TXN-Q) was upgraded to "strong buy" from "market perform" at Raymond James.
Newmont Mining Corp. (NEM-N) was raised to "outperform" from "neutral" at Credit Suisse. The target price is $30 (U.S.) per share.
Walt Disney Co. (DIS-N) was raised to "buy" from "neutral" at Guggenheim Securities. The 12-month target price is $127 (U.S.) per share.
GoDaddy Inc. (GDDY-N) was rated new "buy" at Craig-Hallum. The 12-month target price is $30 (U.S.) per share.
JD.com Inc. (JD-Q) was rated new "overweight" at JPMorgan. The target price is $42 (U.S.) per share.
Kornit Digital Ltd. (KRNT-Q) was rated new "buy" at Stifel. The 12-month target price is $17 (U.S.) per share. The company was also rated new "outperform" at William Blair, and rated a new "buy" at Needham & Co. with a 12-month target price of $18 per share.
DaVita HealthCare Partners Inc (DVA-N) was raised to "outperform" from "neutral" at Robert Baird by equity analyst Whit Mayo. The 12-month target price is $95.00 (U.S.) per share.
FMC Technologies Inc (FTI-N) was raised to "outperform" from "market perform" at Wells Fargo by equity analyst Judson Bailey.
Marvell Technology Group Ltd (MRVL-Q) was downgraded to "neutral" from "buy" at Ladenburg Thalmann by equity analyst Daniel Amir. The 12-month target price is $13 (U.S.) per share.
Virgin America Inc (VA-Q) was downgraded to "sell" from "buy" at CRT Capital by equity analyst Michael Derchin. The 12-month target price is $28 (U.S.) per share.
With files from Bloomberg News