Paul Desmarais Jr., President and CEO of Power Corp speaks during their annual general meeting in Montreal, May 10, 2005. REUTERS/Christinne MuschiCHRISTINNE MUSCHI/Reuters
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.
Raymond James analyst Daryl Swetlishoff downgraded Fortress Paper Ltd. to "underperform" after the company announced its Thurso dissolving pulp mill will close for 10 weeks of downtime in response to market conditions.
Mr. Swetlishoff's price target was placed under review as he significantly reduced his earnings estimates for the company given the impact on production levels.
"Given estimated operating losses in Q413 and 2014 and maintenance capex for the company's two mills, we estimate Fortress could burn $25-million in operating cash between the beginning of Q413 to the end of 2014, in addition to $13-million in current portion of long term debt," Mr. Swetlishoff said in a research note. "As the company had $103-million in cash as of Q313, we do not foresee liquidity issues throughout our forecast horizon. However, should conditions not improve in 2015 we expect the company's liquidity likely will become constrained."
One of the headwinds faced by Fortress is dumping duties imposed by China earlier this year on dissolving pulp, which is used primarily to make clothing.
Last month, CIBC World Markets downgraded Fortress notches to "sector underperformer" from "sector outperformer," after a preliminary determination ruled that China can go ahead with levying the 13 per cent anti-dumping duty on output from the Thurso cellulose mill in Quebec.
The average analyst target is $4.30, according to Thomson Reuters.
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Desjardins Securities analyst Doug Young initiated coverage on holding companies Power Corp. of Canada and Power Financial Corp. - but is recommending purchasing shares in only one right now.
That would be Power Financial, which owns majority stakes in Great-West Lifeco and IGM Financial, as well as a 27.8 per cent flow-through interest in Pargesa. He set a $40 (Canadian) price target on the stock, and a "buy-average risk" rating.
He explained there are three main reasons he's recommending the stock: "First, the company's discount to net asset value of 12.5 per cent is above its 5-year and 10-year historical average of 9.7 per cent and 8.5 per cent, respectively. Second, while we are neutral on Great-West, we do view its acquisition of Irish Life as positive, and both Power companies typically outperform the year after Great-West or IGM Financial announce attractive acquisitions, which has not transpired this time around. Third, the stock offers what we view as an attractive dividend yield of 4.0 per cent."
Power Corp. of Canada holds a 65.8 per cent stake in Power Financial, among ownership stakes in other companies.
So why doesn't he also rate Power Corp. a buy? Among the reasons is that Power Financial's discount to net asset value suggests the greater upside, while Power Corp. has a multi-voting structure with the Desmarais family having voting control - which could turn off some investors, he said.
But Mr. Young isn't bearish on Power Corp. either, giving it a "hold-average risk" rating and a $35 (Canadian) target price - implying the stock has upside potential in the coming year.
"We consider both to be relatively defensive stocks, with good dividend yields and reasonable valuations," he concluded.
The average analyst target price on Power Corp. is $33.46 and on Power Financial $37.67.
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Raymond James has initiated coverage on RMP Energy with an "outperform" rating and $8 (Canadian) price target.
RMP has Montney oil projects in Alberta at Ante Creek and Waskahigan that analyst Kurt Molnar believes offer the potential for several years of growth where the company can post superior returns.
Mr. Molnar says RMP currently has several thousand barrels of oil equivalent per day of productive capacity sitting "behind pipe" awaiting the pipeline project completion at Ante Creek that is expected to be completed before the end of first quarter 2014.
"We accordingly think RMP is taking a modest approach to their current 2014 guidance and there is room for greater spending without any near term need for equity," he says. "We forecast exit 2014 debt to be well under 1.0x run rate cash flow."
The average analyst price target is $7.85.
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CIBC World markets analyst Stephanie Price raised her price target for Constellation Software Inc. to $225 (Canadian) from $160 and maintained a "sector perform" rating.
Constellation's recent €240-million acquisition of Total Specific Solutions, its largest acquisition ever, more than doubles its European revenue and adds a stream of recurring revenue with strong profitability, says Ms. Price.
She believes Constellation's acquisition growth trajectory warranted a change in capital structure, and that the company will continue with its acquisition strategy.
The average analyst price target is $204.21.
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CIBC World Markets analyst Tom Meyer reiterated his "sector outperformer" rating and $15 (Canadian) price target for Lumina Copper Corp.
Mr. Meyers said the 100 per cent-owned Taca Taca project in Argentina is one of the more attractive copper-gold-molybdenum development projects not yet owned by a major.
He adds that just because M&A activity in the copper development space is not making headlines it does not imply that the majors have stopped looking for development opportunities.
"In fact, now is the time that detailed analysis can be carried out in preparation for an eventual positive turn in the cycle," he said.
The average analyst price target is $14.55.
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In other analyst actions:
CIBC downgraded Partners REIT to "sector underperformer" from "sector performer" and cut its price target to $5.25 (Canadian) from $6.50.
GMP upgraded Yamana Gold to "buy" from "hold" and raised its price target to $11.10 from $10.60.
CIBC upgraded Teranga Gold to "sector outperformer" from "sector performer" and raised its target to $1.20 (Canadian) from 90 cents.
RBC Dominion Securities cut its price target on Athabasca Oil to $9 (Canadian) from $10 and maintained a "sector perform" rating.
RBC Dominion Securities raised its price target on Canada Bread Company to $70 (Canadian) from $67 and maintained a "sector perform" rating.
Desjardins Securities raised its price target on Finning International to $29 (Canadian) from $27 and maintained a "hold" rating.
Credit Suisse initiated coverage on Africa Oil with an "outperform" rating and $12 (Canadian) price target.
BMO Nesbitt Burns raised its price target on Altus Group to $18 (Canadian) from $15.50 and maintained an "outperform" rating.
Citigroup upgraded Southern Copper to "buy" from "neutral" and raised its price target to $31 from $28.
Jefferies downgraded El Paso Electric to "hold" from "buy" and cut its price target to $37 (U.S.) from $40.
Goldman Sachs raised its price target on Wynn Resorts to $201 (U.S.) from $183 and maintained a "buy" rating.
Credit Suisse cut its price target on Oil States International to $116 (U.S.) from $130 and maintained a "neutral" rating.
Northland Capital Markets initiated coverage on Groupon with an "outperform" rating and $13 (U.S.) price target.
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