Air Canada stock has risen by more than 50 per cent in the past five weeks.The Globe and Mail
Inside the Market's roundup of some of today's key analyst actions. This file will be updated during the trading day. For breaking analyst actions prior to market open every day, read our Before the Bell morning report.
WestJet Airlines Ltd.'s plans to offer a single transatlantic flight could have "profound long-term implications" on Air Canada's competitive position on flights to Europe, warned Raymond James analyst Ben Cherniavsky as he downgraded his rating on the legacy carrier to "market perform" from "outperform."
WestJet on Friday announced it will begin seasonal daily non-strop flights this summer between St. John's, Newfoundland, and Dublin, Ireland using its 737-700 aircraft. The airline is now promoting same-aircraft service between Toronto and Dublin via St. John's.
While it's just one flight and one route a day, "all it takes is one small leak to eventually deflate a big tire," said Mr. Cherniavsky, who noted that WestJet's advertised fare from Toronto to Dublin next summer is $200 less than what Air Canada's Rouge discount airline is currently offering.
He thinks the WestJet flight is just the first stage of a longer-term plan to extend service over the Atlantic. If successful, WestJet could eventually fly to England and perhaps other locations, as it could choose to order new twin-aisle aircraft in addition to its standard fleet of 737s.
"What is immediately apparent to us is that Canada is not the cozy, peaceful duopoly that some (more bullish) observers have assumed," Mr. Cherniavsky said in a research note. "Although the incumbents managed to push domestic airfares up over the last few years, we have recently seen this pricing power abate with a reacceleration of capacity growth. For example, the lowest available domestic fares for this December are down 15 per cent on average year-over-year, according to the monthly airfare survey that we just completed."
"Moreover, WestJet's foray into the regional market (Encore), the business market (Plus), and now the transatlantic market tells us that it is in no way happy to tacitly split Canada's air travel market (mature though it may be) with its biggest (and only) competitor. On the contrary, the airline remains as fiercely competitive and growth-orientated as ever in a business that has always been zero-sum," he added.
There are other factors Mr. Cherniavsky cited for the Air Canada downgrade - most notably the stock's strong price performance this year. Shares are up more than 155 per cent since he upgraded the stock on Aug. 8, versus only a 6 per cent gain for the S&P/TSX composite index.
He maintained an $8 (Canadian) price target on Air Canada, and reiterated a "market perform" rating on WestJet with a price target of $31 (Canadian).
The average price target among analysts is $7.69, according to Bloomberg data.
========
Citigroup upgraded Goldcorp Inc. to "buy" from "neutral," noting that the stock's 34 per cent drop in price this year has made it more attractive from a valuation perspective.
Analyst Brian Yu trimmed his price target to $28 (U.S.) from $29 as he lowered his earnings per share estimates for 2014 and 2015. That was a reflection of Citigroup revising its price forecasts for gold.
But he thinks Goldcorp is looking attractive relative to peers right now. "While Citi's commodity team maintains their cautious view on gold near-term, we believe that GG presents a nice opportunity relative to the gold mining sector in general based on historical valuation multiples, a realistic and achievable growth profile and quality reserve base," Benzinga quoted Mr. Yu as saying.
The average analyst target is $31.76 (U.S.).
========
IBI Group Inc. is being slammed with a rush of downgrades today after the professional services company reported steep losses last week for a second consecutive quarter.
It wrote off $48-million of unbilled work in progress and accounts receivable during the third quarter, incurred $11-million of cost overruns and breached certain covenants under its credit facility. It now must provide its lenders with a recapitalization plan by the middle of January.
"Facing challenging end-markets, problem contracts (and likely further write-downs in Q4) and financial requirements, we are increasingly concerned," commented CIBC World Markets analyst Paul Lechem as he downgraded his rating to "sector underperformer" from "sector performer" and cut his price target to $1.50 from $4.
Canaccord Genuity analyst Yuri Lynk noted that management has stated that all options are being looked at with regards to the recapitalization plan. "We believe that the most likely outcomes involve significant dilution or new debt carrying punitive interest rates. In our view, there is little equity value left in either case," Mr. Lynk said.
Canaccord downgraded IBI Group to "sell" from "hold" and cut its target to 75 cents (Canadian) from $2. Desjardins Securities downgraded its rating to "sell" from "hold" and cut its target to $1 from $3. Raymond James cut its target to $1.50 from $2.50 and maintained a "market perform" rating.
The average Street target is now $1.13.
========
A murky refinancing plan on the heels of disappointing second-quarter earnings has BMO Nesbitt Burns analyst Jared Dziuba downgrading Niko Resources Ltd. to "underperform" from "market perform."
The Canadian oil and gas producer has been unable to secure conventional financing or sell off assets in order to fund its drilling operation in India, in addition to having accrued a sizeable capital deficit.
Mr. Dziuba slashed his price target to $1.50 (Canadian) from $5.
"Its outlook now hinges on the success of a non-binding proposal for a high cost and restrictive debt refinancing, the terms of which are unknown and the success of which is contingent on several factors including negotiated monetary settlement of rig obligations," he said.
The company was hit hard this year as shares lost nearly two-thirds of its value amid concerns about falling output from assets in India's east coast. Niko had also temporarily halted its Indonesia operations in order to focus on India.
"The proposed refinancing may not be sufficient to cover all of NKO's expected capital commitments through 2016, and Niko's operating outlook remains challenging given its minority interest offshore India where material political and operational uncertainties continue," he said.
The average target among analysts is $5.
========
A surprise resignation from the CEO of TeraGo Inc. has added uncertainty to the company's future, says CIBC World Markets analyst Robert Dek, though he maintained a "sector perform" rating.
Mr. Dek reduced his price target to $9 (Canadian) from $10.
Under the direction of former CEO Bryan Boyd, the telecommunications company moved to incorporate fibre-optic service delivery into its operations, a plan which is still in early stages.
"For all intents and purposes, the TeraGo story was very much on track, as indicated by the company's Q3 results released last week. So the resignation of Boyd is surprising," he said.
Canaccord Genuity analyst Dval Ghose also kept a "buy" rating, though he lowered his target to $11 from $13.
"While the unexpected CEO departure raises many questions, we believe that patient, deep-valued investors with above average risk tolerance should take advantage of current share price weakness," he said.
The average target among analysts is $10.
========
In other analyst actions:
Merrill Lynch downgraded Microsoft to "underperform" from "neutral" and maintained a $36 (U.S.) price target.
Credit Suisse downgraded Mercator Minerals to "underperform" from "neutral" and cut its price target to 5 cents (Canadian) from 30 cents. Raymond James cut its price target to 8 cents from 25 cents and maintained a "market perform" rating.
Canaccord Genuity downgraded Labrador Iron Mines Holdings to "hold" from "speculative buy" on lower-than-expected operating margins in its latest quarter, and cut its price target to 40 cents from 80 cents. Raymond James cut its price target to 35 cents (Canadian) from 70 cents and maintained a "market perform" rating.
Canaccord Genuity boosted its price target on Onex to $66 (Canadian) from $59 and maintained a "buy" rating. RBC raised its price target to $61 (Canadian) from $58 and maintained a "sector perform" rating.
RBC Dominion Securities raised its price target on Gildan Activewear to $51 (U.S.) from $48 and maintained a "sector perform" rating. Raymond James raised its target to $55 (U.S.) from $52 and maintained an "outperform" rating.
Dundee Securities raised its price target on Raging River Exploration to $8.75 (Canadian) from $7.50 and maintained a "buy" rating.
Goldman Sachs downgraded Supervalu to "sell" from "neutral" and cut its price target to $6 (U.S.) from $8.
RBC Dominion Securities upgraded Rayonier to "outperform" from "sector perform" and maintained a $52 (U.S.) price target.
Credit Suisse upgraded Baxter International to "outperform" from "neutral" and raised its price target to $80 (U.S.) from $73.
Global Hunter Securities downgraded Halliburton to "neutral" from "buy" with a price target of $61 (U.S.).
Morgan Stanley downgraded Nvidia to "underweight" from "equalweight" with a price target of $13 (U.S.).
Evercore Partners raised its price target on Amazon.com to $450 (U.S.) from $400 and reiterated an "overweight" rating.
Canaccord Genuity downgraded Renewable Energy Group to "sell" from "hold" and cut its price target to 75 cents (Canadian) from $2.
=======
For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities