A pedestrian is reflected in a Suncor Energy sign in Calgary, Monday, Feb. 1, 2010. The Fort Hills oilsands mine is a go after years of delay, Suncor Energy Inc. announced Wednesday.The Canadian Press
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.
Suncor Energy Inc.'s 2014 capital spending plans that were revealed late Wednesday should further boost free cash flows, leading to a likely large boost in its dividend this coming February, along with additional share buybacks, said Canaccord Genuity analyst Phil Skolnick.
Suncor, which last month approved a new multibillion-dollar oil sands mine, now plans to spend an additional $1-billion more in 2014 than it expects in 2013. It forecasts production in the oil sands next year to grow by more than 14 per cent.
"The key to Suncor's guidance release last night, in our view, is that the company's capex program, cash tax and oil sands operating cost expectations support the potential for another meaningful dividend increase in February 2013 as well as further share buybacks throughout next year," Mr. Skolnick said today in a research note.
He expects Suncor to generate $2.75-billion, or $1.84 a share, next year of free cash flow, when taking into account its new $7.8-billion capital expenditure budget and assuming an average Brent oil price of $104 (U.S.) per barrel and an average West Texas Intermediate price of $97.25 (U.S.) per barrel.
That would mean Suncor would have by far the greatest free cash flow potential next year among Canadian senior integrated energy firms, Mr. Skolnick points out.
Plus, he says shares look cheap based on valuation, trading at 5.9 times estimated 2014 debt-adjusted cash flow, compared with peers at about 6.3 times.
He expects the next catalyst for shares to come at the company's Dec. 4th investor day. "Suncor plans to provide more clarity on its mid-term growth plans including Firebag 5 & 6, which are expected to be low cost de-bottlenecks. We believe the market will be positively surprised by the return potential of these projects; because that is a key unknown," Mr. Skolnick said.
He reiterated a "buy" rating on Suncor shares and a $46 (Canadian) price target. The average analyst target is $42.90, according to Thomson Reuters.
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Canaccord Genuity analyst Christopher Brown now sees much less upside potential for shares in the financially distressed oil and gas producer Niko Resources Ltd. in the wake of the company announcing the retirement of its CEO Ed Sampson this week along with the terms of a new credit facility.
Mr. Brown slashed his price target to $1.50 (Canadian) from $4 while reiterating a "sell" rating.
Jake Brace, former chief financial officer for United Airlines and who has deep knowledge of aiding companies in credit trouble, will take over as interim president next year.
Niko's credit facility is subject to a 15 per cent interest rate, as well as calling for royalty payments on certain production for the next several years. It also stipulates that Niko's $42-million unsecured loan must be paid with outside sources.
"As Niko has few liquidity options, we anticipate that a highly dilutive conversion will soon be forced upon bondholders," Mr. Brown said in a research note. "We believe Niko's finances will remain strained over the foreseeable future."
"We estimate Niko's future funding deficit could be as high as $500-million or as low as $200 -million, depending on divestitures and future exploration. Excluding outside financing sources, we would not expect Niko to start generating free cash until fiscal 2019 or 2020," he said.
Opinions on Niko vary greatly on the Street. BMO Nesbitt Burns upgraded the stock today to "market perform" and raised its price target to $2.50 from $1.50, while FirstEnergy upgraded the stock to "sector performer" and raised its target to $2.75 from $2.50. The average analyst target is $4.91, according to Bloomberg data.
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Desjardins Securities analyst Tim Murray upgraded Whitecap Resources Inc. to "top pick" from "buy," calling the company's acquisition this week of private oil and gas producer Home Quarter Resources "another touchdown on the board."
He also raised his price target to $14 (Canadian) from $13.25.
"We highlight that the deal is accretive to 2014 cash flow, while providing a nice balance sheet clean-up and further consolidating one of the company's core operating areas," Mr. Murray commented. "We had previously noted that Whitecap was well positioned for a potential dividend boost early next year and we believe the planned increase is sustainable, providing a healthy cushion should commodity prices deteriorate next year."
Whitecap also announced a dividend boost, which Mr. Murray sees as "sustainable."
Elsewhere, Dundee Securities raised its price target to $15 from $14 and reiterated a "buy" rating. The average analyst target is $13.94, according to Thomson Reuters.
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Fresh off a merger with another auto parts giant, Advance Auto Parts Inc. had its rating upgraded to "outperform" from "neutral" by Credit Suisse analyst Simeon Gutman, who thinks there are more upsides to the deal than the markets realize.
He also raised his price target to $130 (U.S.) from $82.
The merger with General Parts International will make the company the largest North American retailer of auto parts, giving it control over auto supply chain CarQuest and replacement parts supplier WorldPac.
"We analyzed the store-by-store overlap between AAP and CarQuest (franchise and company owned) stores and surmised that the overlap with the franchised stores is lower than perceived, implying much less risk of the franchise stores departing and better purchasing synergies," he said.
The deal will also bolster business for the retailer, which has seen a downturn in sales as consumers turn to buying new cars instead of fixing old ones. Businesses have increasingly had to turn to commercial sales to make up for falling demand in retail locations, a strategy that has been a boon for competitor O'Reilly Automotive.
"In a best-case scenario, if AAP realizes purchasing, distribution, and operational synergy upside, while maintaining the majority of the franchise business, its margins could move closer to ORLY's (O'Reilly Automotive), implying over $13 in EPS (earnings per share) and a potential stock price of $150," he said.
The average target among analysts is $107.80, according to Thomson Reuters.
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A diversified business has created reliable cash flow for Agrium Inc., leading Raymond James analyst Steve Hansen to initiate coverage with an "outperform" rating and a $106 (U.S.) price target.
One of the world's foremost agricultural business enterprises, the company operates a mix of retail and wholesale businesses selling crop nutrients and farm-related outputs.
"When macro conditions sour (as they have recently), this same diversification quickly becomes a delightful attribute offering a reliable source of baseline (countercyclical) cash flow complemented by unique growth and margin enhancement opportunities. We view this diversity as a cornerstone asset," he said.
Mr. Hansen also predicts that the company will see better earnings growth as the price of urea bounces back in the coming months. The company was hit as an increased supply of urea coming out of China over the past year bottomed out domestic prices. Urea is commonly used in fertilizers as a source of nitrogen.
"We expect this to help investor sentiment over this time period - even though we remain cautious over long-term nitrogen fundamentals," he said.
The average target among analysts is $98.42, according to Thomson Reuters.
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In other analyst actions:
RBC Dominion Securities raised its price target on Open Text to $90 (U.S.) from $85 and maintained an "outperform" rating.
CIBC World Markets raised its price target on Davis + Henderson to $31 (Canadian) from $27 and maintained a "sector performer" rating.
Altacorp Research downgraded Secure Energy Services to "sector perform" from "outperform" and maintained an $18 (Canadian) price target.
Dundee Securities slashed its price target on Augusta Resource to 50 cents from $2.30 and reiterated a "sell" rating over doubts concerning the company receiving a key mining permit.
Goldman Sachs downgraded Philip Morris International to "neutral" from "conviction buy" and cut its price target to $95 (U.S.) from $103.
Jefferies downgraded Consolidated Edison to "underperform" from "hold" and cut its price target to $49 (U.S.) from $60.
Deutsche Bank upgraded Rayonier to "hold" from "sell" and maintained a $47 (U.S.) price target.
JPMorgan downgraded J.M. Smucker to "neutral" from "overweight" and cut its price target to $110 (U.S.) from $123.
UBS upgraded Westar Energy to "buy" from "neutral" and raised its price target to $35 (U.S.) from $33.
FBR Capital initiated coverage on Facebook with an "outperform" rating and $60 (U.S.) price target.
FBR Capital initiated coverage on LinkedIn with a "market perform" rating and $214 (U.S.) price target.
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For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities