The entrance for National Bank on the corner of York St. and Adelaide St. West in Toronto's Financial district.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.
RBC Dominion Securities has upgraded Domtar Corp. to a "top pick" rating while increasing its price target to $115 (U.S.) from $100, impressed with how the paper products company has been successfully repositioning its business into growth markets.
Analyst Paul C. Quinn said Domtar's earnings in the near-term could surprise to the upside.
"Domtar continues to successfully reposition its business away from declining North America white paper markets into growing businesses such as personal care (growing at 7 per cent/year), pulp (+1-2 per cent/year), and specialty papers (GDP+ industry growth rate)," he said in a research note
"With the recent acquisition of Indas, Domtar continues to make progress toward its goal of $300-million plus of EBITDA from consumer product businesses by 2017, while at the same time returning the majority of free cash flow to shareholders," he added.
Mr. Quinn also thinks that recent industry capacity reductions should support strong profitability in the white papers business in the near- to mid-term.
He previously rated Domtar "outperform." The average analyst target is $96.53 (U.S.), according to Thomson Reuters data.
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RBC Dominion Securities analyst Andre-Philippe Hardy shaved his price target on National Bank of Canada after it reported earnings Wednesday, but also reiterated an "outperform" rating.
Mr. Hardy cut his price target by $3 to $90 (Canadian), as he lowered his 2015 earnings per share forecasts to reflect higher expected expenses as a result of a change in pension accounting. But his new 2015 estimated earnings per share forecast of $8.90 still represents a 6 per cent growth rate from estimated earnings in 2014.
And he also believes the stock's current valuation overly discounts the challenges the bank faces and does not reflect the positives, such as organic retail asset growth above peers, disciplined capital spending, above-average prospects for dividend increases, and strong levels of return on equity.
"While we do not believe that National Bank should have the lowest valuation of the peer group, a few elements could keep the stock at the low end of the peer range, including (1) lower capital ratios than peers (the Basel III common equity Tier 1 ratio of 8.7 per cent is likely to be the lowest of the Big 6 banks); (2) lack of geographic diversification; and (3) greater reliance on capital markets. We believe those elements are more than fully reflected in the stock's valuation. The stock's P/E valuation is the lowest of the Big 6 banks (10.7x 2014E EPS versus the range of 10.8-11.6x for the Big 6 banks we cover)," he said.
Elsewhere, Desjardins Securities analyst Michael Goldberg raised his price target to $104 (Canadian) from $101 and maintained a "buy" rating. He commented that National Bank's announcement of a greater-than-expected dividend hike "reflects management's confidence in its ability to sustainably grow earnings."
CIBC World Markets analyst Robert Sedran cut his price target to $97 from $99 and reiterated a "sector underperformer" rating. He cited a larger-than-expected increase in expected pension expenses for the lower target.
The average target among analysts is $54.80, according to Thomson Reuters data.
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Cantor Fitzgerald analyst Justin Kew thinks investors should ignore the "noise" created by a Newsweek report Wednesday that said famed short-seller James Chanos has placed a major bet against CGI Group Inc.
While the stock is coming under pressure because of the reported short position, the company's fundamentals remain solid and this, over time, will lead to a higher stock price, Mr. Kew argued.
"We disagree with Mr. Chanos' short thesis that: 1) CGI's fundamentals are deteriorating; and 2) that the Centers for Medicare and Medicaid Services (CMS) contract will have a lasting negative impact. In addition, we believe that there is additional upside from the Logica acquisition as the European market recovers," he said in a research note.
The company's performance in fiscal 2013 does not support Mr. Chanos' criticism that the company is faced with falling bookings and cash flow, Mr. Kew said. Meanwhile, "the extensive press coverage of the CMS contract was optically negative, but we do not expect a lasting U.S. federal business impact. We understand that there are no outstanding penalties associated with this contract," he said.
Mr. Kew reiterated a "buy" rating and $46 (Canadian) price target. The average target among analysts is $44.23, according to Thomson Reuters data.
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Coalspur Mines Ltd., facing tough competition and delays on a key thermal coal project, was downgraded by RBC Dominion Securities analyst Patrick Morton to "sector perform" from "outperform."
He also lowered his price target to 20 cents (Canadian) from 50 cents.
Slowing Chinese imports have seen a small pick-up recently, though the market is still heavily congested with exports from Indonesia, Australia and South Africa.
In addition, the development of the Alberta Vista coal project, which would make the company the largest export thermal coal producer in North America, has been delayed by legal disputes involving three aboriginal groups and overlapping mineral rights with a competitor.
"The project is long-life and scalable, and should be relatively low cost. Near-term, there is considerable uncertainty in the thermal coal export market, and a lack of visibility on the permitting timeline and financing for Vista," he said.
The project currently still requires over $100-million in additional funding for capital expenditures.
"With a 21-month construction timeline, it's unlikely that production will begin before the end of 2015, especially if there is a further delay…We have pushed out our assumed start date of production by one year to mid 2016 for the Vista Coal Project," he said.
The average target among analysts is $48.75, according to Thomson Reuters.
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An improving share price over the past two months has led Raymond James analyst Pavel Molchanov to downgrade ExxonMobil Corp. to "outperform" from "strong buy" based on valuation, though he kept his price target at 102 (U.S.).
Shares are up 10 per cent quarter-to-date, mainly bolstered by hints that capital spending has peaked and by the company maintaining its quarterly share buyback rate after two quarters of sequential reductions, according to Mr. Molchanov.
"We think Exxon is set to generate at least as much free cash flow in 2014 as it did in 2013 – despite our lower oil price outlook, and without ascribing credit for any spending reductions. We also project that 2014 will be Exxon's first year of production growth since 2011, driven by production from several of the company's largest project startups of this decade," he said.
The company's oil refineries on the Gulf coast have also benefited from the widening spread between Brent crude and Light Louisiana Sweet crude, as lower U.S. light crude oil prices versus international prices have been very good for profitability.
"To be clear, this is a purely tactical move following the recent gains: there is no change in our fundamental stance on the company, or our estimates. Our new rating on Exxon is consistent with Chevron and Total," he said.
The average target among analysts is $95.64, according to Thomson Reuters.
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In other analyst actions:
Altacorp Capital hiked its price target on Air Canada to $12 (Canadian) from $9 and reiterated an "outperform" rating. That's the highest price target on the Street, according to Bloomberg data. "We believe the increasing comfort investors are gaining with Air Canada and the airline industry in general will be one of the major drivers of share price appreciation over the medium term," commented analyst Atlacorp analyst Chris Murray.
Credit Suisse upgraded Canadian Western Bank to "neutral" from "underperform" and raised its price target to $35 (Canadian) from $32.
Goldman Sachs upgraded CF Industries to "neutral" from "sell" and raised its price target to $232 (U.S.) from $184.
Raymond James upgraded Union Pacific to "strong buy" from "market perform" with a price target of $190 (U.S.).
Canaccord Genuity raised its price target on Gildan Activewear to $56 (U.S.) from $53 and reiterated a "buy" rating.
Nomura Securities upgraded Sprint to "buy" from "neutral" and raised its price target to $10.50 (U.S.) from $6.
Macquarie upgraded Marathon Petroleum to "outperform" from "neutral" and raised its price target to $115 (U.S.) from $75. Credit Suisse raised its price target to $80 from $70 but maintained a "neutral" rating.
Macquarie upgraded Valero Energy to "outperform" from "neutral" and raised its price target to $65 (U.S.) from $41.
BMO Nesbitt Burns initiated coverage on Oracle with an "outperform" rating and $42 (U.S.) price target.
Canaccord Genuity cut its price target on Augusta Resource to $4 (Canadian) from $5 and maintained a "speculative buy" rating.
UBS upgraded Celgene to "buy" from "neutral" and raised its price target to $200 (U.S.) from $163.
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For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities