File photo of Johnson & Johnson products.The Associated 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.
Canaccord Genuity analyst Aravinda Galappatthige significantly bolstered his outlook on Yellow Media Inc. today after he reassessed the company's valuation relative to peers and concluded the stock should have much further to climb.
He raised his price target to $27.40 (Canadian) from $18.70 and reiterated a "buy" rating.
Yellow Media looks undervalued, he suggested, with an enterprise value trading at 3.3 times earnings before interest, taxes, depreciation and amortization (EBITDA) compared with an average of 4.1 times for other Canadian print media names.
"Moreover, there are a couple of factors that we believe set Yellow Media apart from its Canadian peers," Mr. Galappatthige said in a research note. "First, Yellow is the only one among them with a clear path to a digital future. The other Canadian media names have digital revenue components in the 10-15 per cent range and are seeing very little movement. Second, Yellow has a large upsell opportunity ahead of it by virtue of that it is in a position to serve as the primary marketing/advertising consultant to the SME (small and medium enterprises) sector."
"In many situations, the Yellow sales person is the only one walking in the door of the SME with a broad marketing/ad offering. This includes selling services beyond ad placement, such as website development, SEO, SEM, Facebook business page creation, etc. This we believe is a vast, predominantly untapped opportunity," he said.
He added that Yellow Media's valuation especially stands out as being cheap when looking at international directory companies. "The upside potential is even greater on the basis of stocks such as Solocal Groupe and Eniro, which are trading in the 5-7 times range," he said.
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While some analysts have been warning recently that shares in Johnson & Johnson may be getting overheated, RBC Dominion Securities analyst Glenn Novarro is taking an opposing view. He upgraded the stock today to an "outperform" rating from "sector perform," while bolstering his price target to $104 (U.S.) from $88.
"While JNJ shares had a breakout year in 2013 (up about 31 per cent), we still see meaningful upside potential from current levels, owing to continued outperformance in the pharma division, which in turn should allow the company to deliver upside to consensus earnings per share," Mr. Novarro said in a research note.
Part of his upbeat view on the company's pharmaceutical sales stems from the expected success of the Invokana drug for diabetes. "Our due diligence on Invokana suggests that the drug should have peak sales of $2-billion plus. JNJ launched Invokana in mid 2013 and our survey work indicates that the drug is gaining meaningful traction in the endocrinology community for Type II Diabetes," he said.
Meanwhile, Mr. Novarro thinks investors may be overlooking the opportunity to boost operating margins over the longer term.
"JNJ delivered over 100 basis points of operating margin expansion in 2013, and is poised to deliver about 100 basis points in 2014 (ex the impact from the yen). Overall, we believe that JNJ is positioned to deliver 100-150 basis points of annual operating margin leverage over the next three years, as spend behind recent pharma launches abates and consumer remediation spend slows, and forex becomes less of a drag. This should translate into high single digit EPS growth over the next three years. Our 2015 EPS forecast of $6.42 is $0.14 above consensus," he said.
The average price target is $97.26, according to Thomson Reuters.
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AltaCorp Capital Research analyst Chris Murray initiated coverage on New Flyer Industries Inc. with an "outperform" rating and $13 (Canadian) price target.
He predicts strong revenue and earnings growth over the next two years for the transit bus manufacturer, driving by recent acquisitions as well as expectations for higher production rates into 2015.
"We believe a robust order pipeline, improving fundamentals, the presence of a strategic investor and strong growth opportunities should result in further share price appreciation, all while offering a sustainable 5.6 per cent cash yield," Mr. Murray said.
The average price target is $11.40.
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In addition to keeping costs in line, Canfor Pulp Products Inc. is likely to boost its dividend soon, says RBC Dominion Securities analyst Paul Quinn, who upgraded the company to "outperform" from "sector perform".
While Mr. Quinn sees short-term downside to pricing due to an expected slowdown in Chinese pulp purchases and capacity additions in Canada and Russia, he says Canfor is well-positioned to benefit from growing global demand trends for softwood pulp in the medium- to long-term.
"We expect Canfor Pulp to raise its quarterly dividend payout from $0.05/sh/qtr to $0.25 in Q214 (implying a dividend yield of about 10 per cent with the stock trading near $10)," he said.
Mr. Quinn increased his price target to $13 (Canadian) from $11. The average target price is $12.32.
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An improving travel industry outlook puts Priceline.com Inc. at the top of Morgan Stanley analyst Scott Devitt's 2014 online travel picks.
"With an expected improvement in European hotel demand, Priceline has the strongest secular tailwinds of our online travel coverage, which should help it post solid international bookings growth in the low-to-mid 30's in 2014," he said.
He also believes Priceline will put to rest long-term concerns over increasing competition from rivals TripAdvisor and Expedia.
Mr. Devitt maintained his "buy" rating and increased his price target to $1,320 from $1,210 (U.S.).
The average price target is $1,220.
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In other analyst actions:
Canaccord Genuity downgraded Sirius XM Canada to "hold" from "buy" as the stock has now surpassed its target price of $9.40 (Canadian) price target.
DA Davidson upgraded Lululemon Athletica to "buy" from "neutral" and raised its price target to $73 (U.S.) from $67.
Cantor Fitzgerald Canada downgraded Pulse Seismic to "hold" from "buy" but raised its price target to $5 (Canadian) from $4.
CIBC World Markets cut its price target on Kirkland Lake Gold to $3.50 from $4 and maintained a "sector performer" rating.
RBC Dominion Securities upgraded Yum Brands to "top pick" from "outperform" and raised its price target to $87 (U.S.) from $85.
Morgan Stanley downgraded Netflix to "underweight" from "equalweight" and cut its price target to $310 (U.S.) from $333.
Merrill Lynch downgraded LinkedIn to "neutral" from "buy" and cut its price target to $240 from $270.
Goldman Sachs downgraded Mattel to "sell" from "neutral" and maintained a $40 (U.S.) price target.
Goldman Sachs upgraded Capital One Financial to "conviction buy" from "buy" and raised its price target to $90 (U.S.) from $80.
Topeka Capital downgraded Monsanto to "hold" from "buy" but raised its price target to $127 from $120.50.
Compass Point added eBay to its "focus list" - its best investing ideas - and raised its price target to $70 (U.S.) from $60.
Deutsche Bank downgraded Humana to "sell" from "hold" and maintained an $87 (U.S.) price target.
Citibank downgraded Michael Kors to "neutral" from "buy" and trimmed its price target to $93 (U.S.) from $95.
UBS raised its price target on United Continental to $44 (U.S.) from $41 and maintained a "neutral" rating.
RBC Dominion Securities upgraded Arris Group to "outperform" from "sector perform" and raised its price target to $28 US from $18.
RBC Dominion Securities upgraded St. Jude Medical to "sector perform" from "underperform" and raised its price target to $64 (U.S.) from $44.
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For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities