Surveyors work next to CP Rail trains which are parked on the train tracks in Toronto on Wednesday, May 23, 2012.Nathan Denette/The Canadian 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.
A challenging outlook for the first half of 2014 at AGF Management Ltd. has prompted Canaccord Genuity analyst Scott Chan to downgrade the stock to "sell" from "hold" while slicing his price target to $10.50 (Canadian) from $12.25. He also thinks the company's dividend is at risk in the longer term.
In the fourth quarter of last year, 30 per cent of assets under management at AGF ranked above the median in the industry, down from 44 per cent last year, which Mr. Chan views as a headwind in achieving sales for the upcoming key RRSP season. He's forecasting retail net redemptions in the first quarter of this year of about $500-million, up from his last estimate of $270-million.
"Our lower target price mainly reflects negative assets under management trends (a key theme for us), particularly higher estimated net redemptions on both client platforms (Emerging Markets and Acuity headwinds) for 1H/14," Mr. Chan said in a research note.
"AGF is not situated well towards our two other main themes of margin expansion (-200 basis points in '14) and free cash flow growth (-14 per cent year-over-year) with an expected payout ratio of 103 per cent in 2014. Longer term, we question the sustainability of the dividend (9.3 per cent yield) unless growth initiatives materialize," he added.
Elsewhere, CIBC World Markets analyst Paul Holden cut his price target on AGF to $12.50 from $13.50 while reiterating a "sector performer" rating, also due in part to expectations for higher mutual fund redemptions.
The average analyst price target is $12.68, according to Thomson Reuters.
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Concerns over a weaker Canadian currency sent the stock of Air Canada into steep descent this week, but CIBC World Markets analyst Kevin Chiang thinks investors may be overreacting.
"We are somewhat surprised by the violent reaction, even when considering that AC.B is inherently a volatile stock, given (the weakening loonie) was one of the key themes for the Canadian airlines entering 2014," Mr. Chiang said in a research note.
Investors are concerned that the Canadian dollar will fall further. CIBC economists are calling for the loonie to trade at an average of 90.9 cents (U.S.) this year, but many other pundits believe the currency will fall further than that, Mr. Chiang notes.
He estimates Air Canada's stock price, as of the close of trading on Wednesday, was factoring in an average Canadian dollar of 86.2 cents (U.S.) in 2014, or almost 4 cents below the current trading level.
"But even with the currency headwinds, we believe AC.B's valuation remains compelling when compared to its peer group," he said.
Mr. Chiang reiterated a "sector outperformer" rating and $11 (Canadian) price target. The average analyst target is $9.81.
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A growing oil-by-rail business, stable potash markets and a big grain crop to move: Canadian Pacific Railway Ltd. has a lot going for it this year. So when the Calgary-based railway says it could boost revenues by 6– to 7-per-cent in 2014, markets expect more.
Investors drove up CP shares by 4 per cent on Wednesday after the company posted record annual and quarterly profit and issued revenue guidance chief executive officer Hunter Harrison called "conservative."
RBC Dominion Securities analyst Walter Spracklin uses a different word for the outlook: "realistic." He cautions harsh weather, foreign exchange rates and the performance of emerging markets could affect the results.
Mr. Spracklin maintained his rating on CP but has raised his estimate for 2014 earnings per share to $8.14, which is just under the 30 per cent growth forecast by the company. "Our 'sector perform' rating reflects the expectation for strong operating trends to continue combined with a slightly more cautious revenue outlook compared to the level of growth currently implied in CP shares," he said.
He raised the share price target to $138 (Canadian) from $133 – well below the $167 the shares trade at. According to Thomson Reuters, the average analyst estimate for CP's share price is $158.
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CIBC World Markets analyst Dean Wilkinson is initiating coverage on HealthLease Properties REIT, a cross-border real estate investment trust that owns 45 seniors housing and care facilities located across the U.S. and Canada.
The REIT's structure, in which they are leased to independent operators under long-term triple net lease arrangements, offers exposure to the rapidly growing seniors housing sector without the operating risk normally associated with such an investment, said Mr. Wilkinson. Also, the REIT's unique lease structures afford above-average cash flow stability for investors.
Mr. Wilkinson rates the REIT "sector outperformer" with an $11.50 price target. The average price target is $11.61.
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At least 30 brokerages raised their price targets on Facebook Inc. today after the company crushed fourth-quarter consensus estimates in reporting results late Wednesday.
Analysts were especially impressed with the strong mobile growth in the latest period.
"Facebook reported another strong quarter that was dominated by the continued transition to mobile, which brings fewer ads at higher prices," said Canaccord Genuity analyst Michael Graham, who raised his price target to $70 (U.S.) from $62 and reiterated a "buy" rating.
"This trend should continue in 2014, along with the probable ramp of Instagram revenue and video ads. We expect several more quarters ahead of expanding newsfeed ad pricing, and also suspect the ad model on Facebook will continue to evolve rapidly, leaving room for future positive surprises."
The average price target is now $69.30, according to Bloomberg data. The overwhelming majority of analysts recommend the stock to investors: 44 have buy ratings, seven rate Facebook as a hold, and not a single analyst recommends selling.
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In other analyst actions:
Dundee Securities upgraded Hudbay Minerals to "buy" from "neutral" and hiked its price target to $10 (Canadian) from $8.50.
CIBC upgraded NuVista Energy to "sector outperformer" from "sector performer" and raised its price target to $10.50 (Canadian) from $9.50.
Industrial Alliance Securities raised its price target on AlarmForce Industries to $14 (Canadian) from $12.75 and maintained a "strong buy" rating.
RBC Dominion Securities downgraded SilverWillow Energy to "underperform" from "sector perform" and slashed its price target to 30 cents (Canadian) from 75 cents.
Canaccord Genuity upgraded Cardiome Pharma to "speculative buy" from "hold" and raised its price target to $9.50 (U.S.) from $5.50.
Citigroup downgraded Citrix Systems to "neutral" from "buy" and cut its price target to $58 (U.S.) from $70. JMP Securities downgraded its rating to "market underperform" from "market perform" with a price target of $45. Baird downgraded its rating to "neutral" from "outperform" and cut its price target to $64 from $75.
Atlantic Equities upgraded Union Pacific to "overweight" from "neutral" and raised its price target to $195 (U.S.) from $170.
ISI Group downgraded Hess to "neutral" from "buy" and cut its price target to $82 (U.S.) from $92.
For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities