Detour Gold’s processing plant facilities at the Cochrane, Ont.-area Detour Lake mine. The mine will be Canada’s largest gold mine when it opens in January.
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.
Analysts are expressing their unease today over the future of Detour Gold Corp. after the company announced the unexpected departure of CEO and founder Gerald Panneton on Monday - a move that pummelled its stock price.
Mr. Panneton is a geologist with decades of experience in the mining industry. No reasons were given for his departure, but the company's stock price has been a disappointment for some time.
Detour Gold started producing gold from its only mine in Northern Ontario earlier this year and has been under pressure to improve its balance sheet with the price of gold trading dangerously close to what it cost the company to produce an ounce of the precious metal.
Canaccord Genuity analyst Rahul Paul was particularly harsh on the company, downgrading his rating to "sell" from "hold" while cutting his price target all the way to $2.50 (Canadian) from $8.
"In our opinion, this development significantly amplifies our concerns regarding the company's viability in current market conditions," Mr. Paul said in a research note. "Pending further clarity from the company, we would assume the worst: i.e., that the Detour Lake ramp-up could take more than 12 months and that the mine may not be free cash flow positive in the current gold price environment. As a result, we expect that Detour could struggle to meet its obligations over the next 12 months."
He calls Detour Gold's current debt levels of about $737-million as "excessively high" for a company unlikely to generate much free cash flow in the near to medium term.
"In our opinion, the best case scenario (if equity were available) could be a major dilutive recapitalization to lower debt levels – potentially at a significant cost to equity holders. We believe downside risks to equity holders remain very high and that investors should avoid long exposure to this stock until we have further clarity on the path going forward," he added.
Mr. Paul's much reduced price target assumes the company will raise $235-million (Canadian) in new equity at $3 a share. "We note that our target price could be sensitive to our equity raise assumptions which in turn would depend on market conditions," he said.
Other analysts see greater upside for the stock: BMO Nesbitt Burns analyst John Hayes, for instance, disagrees that there is an urgent need to raise financing.
"We expect the company has adequate cash and working capital over the near term and we do not see the need for an equity financing to enhance liquidity without seeing the revised 2014 mine plan," Mr. Hayes said. "BMO Research spoke to the interim CEO Paul Martin and COO Pierre Beaudoin for clarification. No further color was provided on the reasons for Mr. Panneton's resignation. It was made clear, however, that there were no issues with the asset or discussions about a near-term financing that had precipitated the resignation."
Mr. Hayes cut his price target on Detour Gold to $9.50 from $12 and maintained an "outperform" rating. Elsewhere on the Street, Credit Suisse downgraded its rating to "neutral" from "outperform" and cut its price target to $5 (Canadian) from $12.
The average target among analysts is now $10.46, according to Bloomberg data.
Shares in Detour Lake, which plunged 30 per cent on Monday, are continuing under pressure today, opening down 8 per cent at $3.46.
=======
Raymond James analyst Steve Hansen downgraded Methanex Corp. to "market perform," believing that there's little upside left for the stock in the near term after its 55 per cent rally since May 1.
Methanex has benefited from a surge in global methanol prices in recent months thanks to healthy demand growth and several lengthy supply outages in key production complexes. Given the tight supply and demand fundamentals, Methanex was able to increase its North American contract price for December.
But the surge in methanol prices should fade in coming months, as outages are resolved and more supply enters the market, said Mr. Hansen. Still, he thinks prices "will likely hold for longer and settle higher than most investors expect."
Mr. Hansen, who previously rated the stock as "outperform," reiterated his $68 (U.S.) price target. The average analyst target is $64.73, according to Bloomberg.
=======
Growth in the aerospace sector along with the potential for expanded sales opportunities for Hexcel Corp. in the long term has Canaccord Genuity analyst Ken Herbert reiterating a "buy" rating on the stock and raising his price target to $50 (U.S.) from $46.
The aerospace materials company is expected to release modest 2014 guidance next month, but Mr. Herbert speculates that Hexcel will be a top performing stock in 2014, in part driven by profits from the Airbus A350.
"In addition to the fundamental upside from the commercial aerospace and wind markets in 2014, we believe HXL will continue to benefit from positive commentary on its cash deployment strategies…The company's priorities for cash deployment remain organic growth, acquisitions, and then stock repurchases," he said.
The company is also awaiting Boeing's decision on where it will manufacture the wings for its 777X. If the wings are manufactured in the U.S., it would significantly boost the company's involvement with the 777 line.
"While this program would not have a financial impact for several years, likely in the 2017-2020 time frame, it would be viewed as a positive catalyst," he said.
The average target among analysts is $46.33, according to Thomson Reuters.
=======
Delphi Energy Corp. is undervalued and has the potential to be a big performer, according to Raymond James analyst Kurt Molnar, who initiated coverage with a "strong buy" rating and a $2.45 (Canadian) price target.
The company has benefited from the rise in natural gas prices that began early this year, and has since continued to slowly increase its operations at its Bigstone Montney project.
"The market is ascribing common conventions to an unconventional project at Bigstone in our view. The market believes debt is too high and new well NPVs (net present value) in the order of $20-million must not be possible," he said.
Mr. Molnar notes that the company's independent engineers have corroborated the potential net present value estimates in the last reserve update, and that Delphi has delivered consistent results in the past.
The average target among analysts is $1.98 according to Thomson Reuters.
=======
Strong profits thanks to rising customer spending and subscriptions has Credit Suisse analyst Philip Winslow maintaining an "outperform" rating on Palo Alto Networks Inc. and raising his price target to $60 (U.S.) from $57.50.
The company's financial results have improved over the last couple of quarters as customers flock to its next-generation firewall product.
"Palo Alto's top 25 customers have spent 19.6 times their initial purchase," he said.
The company's shares have also seen a sharp hike over the past month, increasing 19 per cent from its lowest point in November.
"Palo Alto's improved results over the past two quarters reinforce our thesis that Palo Alto is positioned to continue to gain market share given the many unique advantages of its next-generation firewall platform," he said.
The average target among analysts is $56.88, according to Thomson Reuters.
=======
In other analyst actions:
Goldman Sachs downgraded Freeport-McMoRan to "neutral" from "buy" and raised its price target to $37 (U.S.) from $36.
Dundee Securities downgraded Stantec to "neutral" from "buy" and maintained a $67 (Canadian) price target.
Morgan Stanley upgraded Agnico-Eagle Mines to "overweight" from "equalweight" and upgraded Kinross Gold to "equalweight" from "underweight."
BMO raised its target on Merck to $54 from $50 and maintained an "outperform" rating.
UBS raised its price target on Workday to $85 (U.S.) from $78 and maintained a "neutral" rating.
UBS raised its price target on Walt Disney to $78 (U.S.) from $72 and maintained a "buy" rating.
Raymond James initiated coverage of Paramount Resources with a "strong buy" rating and $54 (Canadian) price target.
Raymond James initiated coverage on Peyto Exploration and Development with an "outperform" rating and $38.50 price target.
Raymond James initiated coverage on Tourmaline Oil with an "outperform" rating and $50 (Canadian) price target.
Raymond James initiated coverage on Trilogy Energy with an "outperform" rating and $37 (Canadian) price target.
RBC Dominion Securities initiated coverage on Colgate-Palmolive with an "outperform" rating and $79 (U.S.) price target.
RBC Dominion Securities initiated coverage on Cott with a "sector perform" rating and $9 (U.S.) price target.
RBC Dominion Securities initiated coverage on ConAgra with a "sector perform" rating and $33 (U.S.) price target.
RBC Dominion Securities initiated coverage on Coca-Cola with an "outperform" rating and $50 (U.S.) price target.
RBC Dominion Securities initiated coverage on Pepsico with a "sector perform" rating and $89 (U.S.) price target.
Credit Suisse initiated coverage on The Container Store with an "outperform" rating and $45 (U.S.) price target.
=======
For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities