Netflix is investing heavily in original programming to keep the U.S. business growing and support chief executive Reed Hastings’s international expansion.Paul Sakuma/The Associated Press
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.
Proprietary research suggests that current Netflix Inc. subscribers in the United States prefer the service over television, says FBR Capital.
The video-streaming service posted an impressive first-quarter earnings report after the close on Wednesday, adding more subscribers than anticipated to boost its total to 62-million worldwide.
Shares are up more than 12 per cent ahead of the open; as of Wednesday's close, the stock was up 36 per cent year-to-date.
FBR's survey results indicate "that Netflix users value the service more than multichannel pay TV: 57 per cent of the nearly 800 Netflix users queried said that, if forced to choose, they would keep Netflix over traditional pay TV; 49 per cent reported spending more time watching Netflix than traditional pay TV," said analyst Barton Crockett.
The analyst believes the company's international business can grow to be six times that of its U.S. business, and notes that it is moving aggressively in the second half of the year to expand abroad.
"Once international launches wind up in 2016, earnings growth should be very steep," he said.
Mr. Crockett upgraded the stock to "outperform" from "market perform" and raised his price target to an eye-popping $900 (U.S.) – the highest price target on the Street – from $400.
The average analyst price target is $527.13.
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The end of DHX Media Inc.'s licensing rights contract with Disney Channel brings further uncertainty to its broadcast division, said CIBC World Markets analyst Tony Rizzi.
DHX plans to rebrand its Disney channels to build its Family Channel identity. Previously, Disney had supplied approximately 60 per cent of the content to DHX channels, and Mr. Rizzi estimates the deal cost close to $30-million per year.
DHX said it expects "significant cost savings" of $5-million to $7-million annually and no revenue decline, however Mr. Rizzi said that is unlikely.
"Our view is that over time, as distribution deals roll off (and over-the-top digital video market further gains momentum), top line pressures will continue for DHX's TV business," Mr. Rizzi said. "Our bias has turned much more negative for this segment, and can only turn if management can somehow find a way to find programming quality of relatively similar calibre - a tough task in our view. Of note, DHX did announce a small Mattel output deal which is an example of the types of deals to come."
He lowered his price target to $9 from $9.50. The consensus is $10.20.
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CIBC World Markets analyst Paul Lechem said it is a "definite positive" that SNC-Lavalin Group Inc. can still land federal government contracts, like the recently announced $3-billion to $5-billion replacement of Champlain Bridge in Montreal, given it is facing federal fraud and corruption charges for its work in Libya.
SNC led the winning eight-member consortium, called the Signature on the Saint-Lawrence Group, and is one of three equity partners.
Mr. Lechem said he is unsure whether SNC can turn a profit on such projects, given recent struggles in infrastructure and construction division. The final cost of the project is to be announced in the coming months.
"Despite the contract win, we continue to advise investors to take a cautious stance on SNC, given limited visibility to its earnings potential," he said. "Beyond contract wins, we look to more stable and improved financial results before turning more positive on the stock."
He raised his price target to $46 (Canadian) from $44. The consensus is $46.95.
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TransAlta Renewables Inc.'s $1.78-billion (Canadian) investment in its parent company TransAlta Corp.'s Australian asset portfolio brings both geographic and asset-type diversification, said Desjardins Securities analyst Bill Cabel.
It is financing the deal through both a previously announced bought deal agreement as well as shares issued to TransAlta Corp., which will own 77 per cent of the company. The deal is accretive to cash flow per share.
Mr. Cabel said the deal should increase the company's enterprise value by 80 per cent and float by approximately 46 per cent. Adjusted EBITDA will rise by close to 68 per cent in 2016 and 113 per cent in 2017.
TransAlta is increasing is dividend by 9 per cent to 84 cents and plans for a further increase of 6 per cent to 7 per cent to approximately 90 cents in the first half of 2017 when the South Hedland project reaches cash on delivery.
"This transaction and the investment structure were set up to provide the opportunity for more dropdowns of Canadian assets (Sarnia, Le Nordais and Ragged Chute) as well as to provide a right of first offer (ROFO) on future growth initiatives in Australia," Mr. Cabel said.
The analyst increased his target price on TransAlta Renewables to $12.75 (Canadian) from $11.50. The analyst consensus is $13.42.
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Thomson Reuters Corp. is "due for a pause" after a solid rally following the release of its fourth-quarter earnings, according to RBC Dominion Securities.
The company's U.S.-listed share price has far outperformed the S&P/TSX composite index since the publication of its year-end results on Feb. 11, rising 10 per cent compared to 2 per cent for the Canadian benchmark index.
"While we remain positive on the ongoing turnaround story within F&R [financial and risk segment] and supportive of the company's current capital allocation strategy, we believe the stock is due for a pause and we would be patient for a more timely entry point," said analyst Drew McReynolds. "As 2015 progresses, we expect commercial adjustments from the Thomson One migration and unusual FX [foreign exchange] headwinds to be a near-term net asset value drag."
The scope for multiple expansion is small, says Mr. McReynolds, as the stock is already trading slightly above the high end of its historical range for estimated forward 12-month enterprise value to earnings before interest, taxes, depreciation, and amortization. Visibility into organic revenue growth, he adds, remains limited.
The market is also poised to be disappointed by earnings growth this year while the 2016 estimates look to be on the low side, according to the analyst.
Mr. McReynolds downgraded the stock to "sector perform" from "outperform" and maintained a $41 (U.S.) price target on the stock.
The average analyst price target is $40.43.
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In other analyst actions:
Alcatel-Lucent was downgraded to "hold" from "buy" at Craig- Hallum. The 12-month target price is $4.50 (U.S.) per share. BMO Capital Markets downgraded the stock to "market perform" from "outperform" with a target price of $4.40 per share. Credit Suisse downgraded the stock to "neutral" from "outperform" with a target price of $4.60 per share.
Panera Bread Co. was upgraded to "market perform" from "underperform" by Raymond James. The stock was rated new "Neutral" at Guggenheim Securities.
Turquoise Hill Resources Ltd. was downgraded to "hold" from "speculative buy" at TD Securities. The target price is $5 (Canadian) per share.
Thomson Reuters Corp. was lowered to "sector perform" from "outperform" at RBC. The 12-month target price is $41 (Canadian) per share.
Etsy Inc. was initiated with a "buy" rating at Brean Capital. The 12-month target price is $19 (U.S.) per share.
TransAlta Renewables Inc. was raised to "buy" from "hold" at TD Securities. The 12-month target price is $15.50 (Canadian) per share.
Alterra Power Corp. was raised to "speculative buy" from "market perform" at Cormark Securities. The 12-month target price is 65 cents (Canadian) per share.
TD upgraded Bonterra Energy to "buy" from "hold" and raised its price target to $45 (Canadian) from $40.
BJ's Restaurants Inc. was rated new "buy" at Guggenheim Securities. The target price is $60 (U.S.) per share.
Buffalo Wild Wings Inc. was rated new "neutral" at Guggenheim Securities.
Cheesecake Factory Inc. was rated new "neutral" at Guggenheim Securities.
Chipotle Mexican Grill Inc. was rated new "buy" at Guggenheim Securities. The target price is $780 (U.S.) per share.
Tableau Software Inc. was rated new "buy" at Stifel. The 12-month target price is $115 (U.S.) per share. William Blair rated the stock new "outperform."
Dunkin' Brands Group Inc. was rated new "market perform" at BMO Capital Markets. The 12-month target price is $52 (U.S.) per share. Guggenheim Securities rated the stock new "buy" with a target price of $53 per share.
Intel Corp. was raised to "market perform" from "underperform" at Sanford Bernstein. The 12-month target price is $32 (U.S.) per share.
Lowe's Cos Inc. was raised to "overweight" from "neutral" at Piper Jaffray. The 12-month target price is $88 (U.S.) per share.
Mattel Inc. was raised to "outperform" from "market perform" at Wells Fargo.
McDonald's Corp. was rated new "buy" at Guggenheim Securities. The target price is $108 (U.S.) per share.
Nokia OYJ was downgraded to "neutral" from "outperform" at Credit Suisse. The target price is $9.96 (U.S.) per share. RBC Capital downgraded the stock to "sector perform" from "outperform." The 12-month target price is $9 per share.
Starbucks Corp. was rated new "outperform" at BMO Capital Markets. The 12-month target price is $56 (U.S.) per share. Guggenheim Securities rated the stock a new "buy." The target price is $56 per share.
SanDisk Corp. was downgraded to "neutral" from "positive" at Susquehanna. The 12-month target price is $60 (U.S.) per share.