Tibor Kolley/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.
Investors should wait for a pullback before buying shares of Valeant Pharmaceuticals International Inc., Canaccord Genuity analyst Neil Maruoka said after the stock rallied more than 12 per cent Tuesday to a record high as the company provided pleasing guidance numbers.
Mr. Maruoka, however, still sees substantial upside potential even from current levels and reiterated a "buy" rating and raised his price target to $145 (U.S.) from $119. Shares in the company opened up 2.5 per cent on the New York Stock Exchange this morning at $128.91 (U.S.).
In its financial forecast for 2014 on Tuesday, Valeant said it would grow its adjusted earnings and revenue this year by about 40 per cent each – to as much as $8.75 a share and $8.6-billion, respectively. That beat some analysts' expectations, as the pharmaceutical company continues to rapidly grow through acquisitions and aims to become one of the world's five biggest pharmaceutical companies.
Valeant said it is investing heavily to drive product launches and expand its sale force. This spending should amplify organic growth, commented Mr. Maruoka, which should ease investors' concerns that the company was relying too much on acquisitions to grow revenues.
It also continues to pursue a "merger of equals" that could accelerate the company's debt repayment.
"Despite the reinforcement of our positive fundamental view, we believe that much of the stock appreciation was a result of the company's stretch goal to become a top five health-care company by the end of 2016. As such, we recommend that investors watch for a pullback to present a more attractive entry point," Mr. Maruoka said.
Also today, Morgan Stanley upgraded Valeant to an "overweight" rating from "equalweight" and UBS raised its target to $141 (U.S.) from $125 as it reiterated a "buy" rating. The average analyst target is $141.11, according to Bloomberg data.
(Read more on the outlook for Valeant from David Berman here.)
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CIBC World Markets analyst Cosmos Chiu is warming up to Lake Shore Gold Corp.
He upgraded his rating to "sector performer" from "sector underperformer" after concluding record production in 2013 marks a turning point for the company. He also raised his price target to 65 cents (Canadian) from 45 cents.
Lake Shore said it produced 134,600 ounces of gold last year, at the top end of its guidance of 120,000 ounces to 135,000 ounces. "More significantly, the company achieved net free cash flow, increasing its cash and bullion balance to $34-million (from $15.2-million the prior quarter)," noted Mr. Chiu.
Achieving net free cash flow has largely been made possible by improvements in its operations, most notably by better grades and higher mill throughput, he commented. Going forward, the company should benefit from reduced capital spending given the recent completion of its mill expansion.
"LSG has been able to translate operational improvement into positive free cash flow, and is now focused on addressing debt levels on its balance sheet," Mr. Chiu said.
The average analyst target is 71 cents.
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Investors should be able to make a 70 per cent return over the next year by buying shares in TSX Venture-listed Input Capital Corp., the world's first and only agricultural commodity streaming company, said M Partners analyst Tom Varesh.
He initiated coverage of the stock today with a "buy" rating and 12-month price target of $3.10 (Canadian).
Input Capital makes an upfront payment to the owner of canola farms in Western Canada in exchange for the purchase of a portion of their future production at a fixed price per tonne for the life of the streaming contract. Typically, the lengths of the streaming contracts are five to seven years, during which Input Capital takes delivery of a canola stream that typically represents 50 per cent to 60 per cent of the historic farmer's production.
The upfront payment provides these farmers with long-term working capital, which allows them to achieve greater yields by investing in fertilizers, new equipment and labour.
The company currently only has 10 canola streaming contracts with farmers, but this is expected to grow to about 30 contracts by this May, Mr. Varesh noted.
"With about 50 per cent of Canadian land assets expected to be transferred to new owners in the next five years and with 75 per cent of farmers that plan to retire not having a succession plan, we believe Input Capital's addressable market and short-term potential to grow the number of streaming contracts it has with farmers is tremendous," the analyst said in a research note.
"With the current price for canola about $440/tonne and Input Capital's contracted price to pay farmers at about $79/tonne while its other cash costs all-in amount to $77/tonne, we believe Input Capital is on track to generate about $4.9-million of operating cash flow in fiscal 2014 from its first 10 stream contracts, increasing to an estimated $19.9-million in fiscal 2015 assuming another 18 to 20 streaming contracts are signed by May 2014," he said.
Mr. Varesh becomes the sixth analyst to cover Input Capital, according to Bloomberg data. All have buy ratings, with an average target of $2.88.
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Credit Suisse analyst Karen Holthouse initiated coverage on Starbucks Corp. with an "outperform" rating due to the company's focus on convenience and its appeal to the younger generation.
Ms. Holthouse says Starbucks' unique ability to marry quick service restaurant convenience, combined with its launch of mobile payment and move toward drive-thrus can continue to grow relevance with convenience-focused millennials.
She says lunch is also a growing area for the company, proof that Starbucks can capitalize on this competitive advantage outside of beverages.
Ms. Holthouse set a $96 (U.S.) price target. The average target is $89.30.
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The demand for safer tank railcars in the wake of the Lac Megantic tragedy bodes well for Kelso Technologies Inc., according to Jennings Capital analyst Russell Stanley.
Mr. Jennings says the steady news flow of rail-related mishaps will drive demand for Kelso`s products, which include proprietary components for the tank railcar market.
"We continue to view KLS as a timely play on concerns regarding the safe shipment of hazardous materials combined with the growth in shipping of crude oil by rail," he said.
Mr. Stanley continues to recommend Kelso Technologies as a "speculative buy" with a 12-month target price of $4.00 (Canadian). The average target is $4.02.
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In other analyst actions:
CIBC World Markets downgraded Cervus Equipment to "sector performer" but hiked its price target to $25 (Canadian) from $24.
M Partners upgraded Partners REIT to "buy" from "hold" and maintained a $6 (Canadian) price target.
Cantor Fitzgerald downgraded Twitter to "sell" from "hold" and maintained a $32 (U.S.) price target.
Wells Fargo downgraded McDonald's to "market perform" from "outperform" with a $100 to $102 (U.S.) valuation range. Credit Suisse initiated coverage on McDonald's with a "neutral" rating and $96 price target. UBS initiated coverage with a "buy" rating and $107 (U.S.) price target.
BMO Nesbitt Burns downgraded Eli Lilly to "underperform" from "market perform" and maintained a $50 (U.S.) price target.
Credit Suisse downgraded U.S. Bancorp to "neutral" from "outperform" but hiked its price target to $44 (U.S.) from $40.
Deutsche Bank upgraded Hershey to "buy" from "hold" and raised its price target to $108 (U.S.) from $90.
Deutsche Bank upgraded Kraft Foods Group to "buy" from "hold" and raised its price target to $59 (U.S.) from $54.
Deutsche Bank downgraded Dean Foods to "hold" from "buy" and cut its price target to $19 from $23.
JPMorgan downgraded Clorox to "underweight" from "neutral" and maintained a $90 (U.S.) price target.
Deutsche Bank downgraded J.M. Smucker to "hold" from "buy" and cut its price target to $110 from $114.
RBC Dominion Securities downgraded Baker Hughes to "sector perform" from "outperform" and cut its price target to $60 (U.S.) from $67.
RBC Dominion Securities downgraded National-Oilwell Varco to "sector perform" from "outperform" but maintained an $86 (U.S.) price target.
RBC Dominion Securities downgraded Noble Corp. to "sector perform" from "outperform" and cut its price target to $40 (U.S.) from $41.
RBC Dominion Securities upgraded Patterson-UTI Energy to "outperform" from "sector perform" and raised its price target to $29 (U.S.) from $25.
RBC Dominion Securities upgraded Helmerich & Payne to "outperform" from "sector perform" and raised its price target to $96 (U.S.) from $84.
RBC Dominion Securities upgraded Nabors Industries to "outperform" from "sector perform" and raised its price target to $20 (U.S.) from $19.
RBC Dominion Securities downgraded Cameron International to "outperform" from "top pick" but raised its price target to $68 (U.S.) from $64.
Credit Suisse initiated coverage on Yum Brands with a "neutral" rating and $79 (U.S.) price target.
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For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities