Air Canada jets sit by the gates at Toronto Pearson International Airport in Toronto on April 25 2013.Fred Lum/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 analyst Walter Spracklin raised his price target on Air Canada shares to $13 (Canadian) from $10 and reiterated an "outperform" rating after the airline said this morning that its domestic pension plans have swung to a small surplus.
"This is a significant positive turn in Air Canada's pension funding situation when considering that as of January 2013 the pension solvency deficit was $3.7-billion and $4.2-billion in 2012," said Mr. Spracklin.
Several factors, including strong asset returns of 13.8 per cent in 2013, contributed to the deficit swinging to surplus.
Mr. Spracklin notes that if Air Canada's pension remains fully funded over the next two years, the airline will no longer be required to make any pension solvency payments, which are currently capped at $200-million. That should free up 70 cents per share in annual cash, which the airline could use to help with its transformation or further pay off debt, he said.
Mr. Spracklin wasn't alone in moving up his forecasts for Air Canada. BMO Nesbitt Burns raised its target to $12 from $10 and Cormark Securities raised its target to $13 from $8.50. The $13 targets from RBC and Cormark are the highest on the Street, where they now average $10.09.
=====
Penn West Petroleum Ltd. shares plunged today after the company provided a fourth-quarter operational update late Tuesday and announced about $175-million in additional non-core asset sales.
AltaCorp Capital Research analyst Jeremy McCrea noted that fourth-quarter production was below expectations, with weather-related and operational shutdowns responsible for the lost production of about 4,500 barrels per day of oil equivalent.
"Although we applaud the steps taken to improve Penn West's balance sheet after disappointing growth performance over the past few years, we believe the company is only half way there," Mr. McCrea commented in a research note. "With the large employee layoffs and reassignment of duties late in 2013, we believe the risk that the company misses expected production rates ... is heightened."
"With further asset sales pending (at an unknown price), we believe it is prudent that investors take a wait-and-see approach. That said, the company does have one of the largest land positions amongst its peers and once revamped, with the proper management/employees in place, and asset sales complete, the company likely has a much brighter future with its Cardium and Viking positions," he added.
Mr. McCrea reiterated a "sector perform" rating and $10 (Canadian) price target. Shares in early trading were down 12 per cent at $7.89.
Elsewhere on the Street, Credit Suisse reiterated an "underperform" rating and $8 (Canadian) price target. "Our underperform thesis on PWT has been a result of the company's historically poor capital efficiency and growing balance sheet... We note that continued execution on the cost reduction front would be positive to our view," Credit Suisse said.
The average analyst target for Penn West is $10.44, according to Thomson Reuters data.
=====
Mega Brands Inc. is a "a steadily improving story, with a solid base" of toy brands and partnerships, said Industrial Alliance analyst Neil Linsdell.
The toymaker also enjoys "a number of opportunities to expand on current brands and relationships, while also building on in-house brands," he wrote in a research note.
"Growth is still expected in the fourth quarter, although consumer demand looks to be weak in North America and Europe." A soft fourth quarter has already been factored into market expectations, he said.
Its Mega Bloks have so far managed to outpace the construction toy category, with 5 per cent year-on-year growth for the first three quarters of 2013, versus the industry average of 3 per cent, Mr. Linsdell said.
"Investors should use any short-term weakness, specifically around upcoming results, as an opportunity to initiate or add to positions," he said.
Mr. Linsdell raised his target price to $18 from $16 and raised his rating to "strong buy" from "hold." The analyst consensus target price over the next year is $16.30, according to Thomson Reuters.
=====
Detour Gold Corp. exhibits "extremely strong cash flow per share sensitivity to the gold price due to its relatively high all-in cost structure for 2014," said Desjardins Securities analyst Michael Parkin.
After the miner's fourth-quarter results, "we view the company's financial health slightly more positively, but we continue to estimate that Detour needs to raise about $75-million (U.S.) in order to maintain sufficient working capital as the Detour Lake mine is ramped up to design capacity this year," he wrote in a research note.
"We believe Detour could trade at higher multiples once the financing risk is out of the name."
Mr. Parkin raised his price target to $6.75 (Canadian) from $6 and downgraded his rating to "hold" from "buy." The analyst consensus target price over the next year is $8.21, according to Thomson Reuters.
=====
Iamgold Corp. has been hit with downgrades after providing weaker-than-expected guidance this week, with analysts concerned that its recent outperformance against peers has made it vulnerable to a pullback.
The stock had gained nearly 30 per cent so far this year, about double its peers and far surpassing the 4 per cent rise in the gold price.
"We believe the strong outperformance has shifted the risk-reward profile, particularly in light of generally weaker-than-expected guidance," commented Canaccord Genuity analyst Tony Lesiak as he downgraded his rating to "hold" from "buy" while maintaining a $5 (Canadian) price target.
Iamgold's production guidance was close to Mr. Lesiak's expectations, but predicted costs were 8 per cent higher. "The cost increase is concerning as we still await LOM (life of mine) plans for all of IMG's key assets," he said..
Elsewhere, Clarus Securities downgraded Iamgold to "hold" from "buy" and cut its price target to $5.30 from $7.50.
=====
In other analyst actions:
Canaccord Genuity downgraded CAE to "hold" from "buy" on share price appreciation, hikes target to $15.50 (Canadian) from $13.50.
RBC Dominion Securities downgraded Capstone Mining to "sector perform" from "outperform" after its recent rally and raised its price target to $3.40 (Canadian) from $3.
Credit Suisse hiked its price target on Open Text to $95 (U.S.) from $75 and kept a "neutral" rating.
M Partners downgraded Wajax to "hold" from "buy" and maintained a $39 (Canadian) price target.
Goldman Sachs downgraded Mosaic to "sell" from "neutral" but raised its price target to $41 (U.S.) from $35.
FBR Capital upgraded Juniper Networks to "market perform" from "underperform" and raised its price target to $25 (U.S.) from $16.
UBS raised its price target on TD Ameritrade to $36 (U.S.) from $28 and maintained a "neutral" rating.
Sterne Agee downgraded Dollar Tree to "neutral" from "buy" and cut its price target to $56 (U.S.) from $63.
RBC Dominion Securities downgraded The Travelers Cos. to "outperform" from "top pick" and cut its price target to $98 US from $100.
Argus initiated coverage on Catamaran with a "buy" rating and $65 (U.S.) price target.
For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities