BlackBerry employees prepare an event in London, England, on Jan. 30, 2013.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.
CIBC World Markets analyst Todd Coupland is growing a little more confident that BlackBerry Ltd. will be able to halt the downward spiral in its business after a meeting with chief financial officer James Yersh last week. But he's not advising investors to buy the stock just yet.
"Our overall takeaway was that cash flow positive territory can be reached by the fourth quarter of fiscal 2015 and operating expenditure cuts can be in line and perhaps even below previously announced plans," he said in a research note. Key to this is that BlackBerry should see a material reduction in the cost of goods sold in the second half of fiscal 2015 due to lower fixed royalty payments.
Restructuring is coming along better than expected, he said, and Mr. Yersh plans to bring operating expenditures to well below the targeted level of $500-million per quarter from the current level of around $900-million. Meanwhile, BlackBerry's cash position "looks good," he said, at $3.2-billion.
"BlackBerry's plan is to sell most of its real estate (about $300-million) and see a tax refund ($500-million) that will add about $800-million in cash," Mr. Coupland said. "Our view is BlackBerry's cash burn will be no more than $1.1-billion over the next year, leaving over $2.9-billion in cash at the targeted cash flow break-even point."
Despite this progress on the balance sheet, there's still a big hurdle for BlackBerry: the rapid decline in its service revenues. Chief executive officer John Chen's focus on BlackBerry's enterprise division will be slow to take root, as the sales force must be expanded and the company must convince enterprises to pay for BlackBerry Enterprise 10 platform security and other products.
"The real test of the transition plan is to convince enterprise customers that paying for its mobile device and services offering makes sense. Thus far we have not seen any data points to indicate this is taking place," said Mr. Coupland.
As such, Mr. Coupland maintained a "sector underperformer" rating and $5 (U.S.) price target, well below the average analyst price target - according to Thomson Reuters - of $7.18.
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Analysts are applauding Héroux-Devtek Inc.'s plans to acquire two subsidiaries of BBA Aviation PLC that provide landing gear and hydraulic systems for aircraft original equipment manufacturers.
Raymond James upgraded its rating on the stock to "outperform" from "market perform" while raising its price target to $13.50 from $9.50. Desjardins Securities hiked its price target to $13 (Canadian) from $10.50 and maintained a "buy" rating.
"We view the BBA acquisition positively for a number of reasons," said Raymond James analyst Ben Cherniavsky. "(i) it diversifies Héroux's customer base while also increasing its focus on the core competency of landing gear design; (ii) it increases Héroux's mix of higher margin after-market work; and (iii) it increases the company's proportion of proprietary programs compared to built-to-print activities."
"Overall, we think this acquisition is well-aligned with Héroux's strategic goal of becoming a global force in the highly technical landing gear segment of the aerospace market. We estimate that BBA will be immediately accretive to Héroux's fiscal 2015 financial results and that it will deliver further synergies over time," he said.
"We encourage small-cap investors to buy the stock based on the company's improving earnings profile over the next few years," Mr. Cherniavsky added.
Desjardins' analyst Benoit Poirier also called the acquisition "a key catalyst" for the stock.
The average analyst target is $12.46, according to Bloomberg data.
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Pfizer Inc. stock is rallying sharply this morning and is the top advancer in the Dow Jones industrial average after Jefferies analyst Jeffrey Holford upgraded his rating to "buy" from "hold." He also raised his price target to $38 (U.S.) from $33.
He believes that the market is under-appreciating Pfizer's palbociclib drug that could be used in the treatment of breast cancer. On Monday, Pfizer said it found "statistically significant" improvement in survival rates among women using the drug.
He also thinks a new organizational structure expected this quarter could be a catalyst for shares.
"The strategic options being potentially pursued could result in a number of different future structures and timelines attached to them," Mr. Holford was quoted as saying by StreetInsider. "We expect that the increased visibility, operational efficiency and improved taxation structure that may come with a reorganization will result in increased shareholder value."
The average analyst price target is $33.28, according to Thomson Reuters.
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UBS analyst Roxanne Meyer says an unfolding transformation at Gap Inc. that is not recognized by investors is behind her ratings boost for the clothing retailer.
Ms. Meyer says she expects Gap to deliver 15 per cent plus earnings per share growth over the next three years due to factors such as industry-leading e-commerce initiatives and outsized exposure to athletic apparel.
"All these opportunities lead to one of the highest incremental margin stories in the industry," she says. "In our view, GPS's mix shift to higher margin businesses and supply chain initiatives are not well understood by investors."
Ms. Meyer upgraded Gap to "buy" from "neutral" and hiked her price target to $50 (U.S.) from $41, well above the consensus price target of $44.41, according to Thomson Reuters.
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RBC Dominion Securities Inc. analyst Irene Nattel expects strong fourth-quarter performance from Canadian Tire Corp., despite some headwinds.
Ms. Nattel is forecasting a modest 2 per cent earnings per share increase to $2.21 when Canadian Tire reports fourth-quarter results Feb. 13. That's down from her last estimate of $2.23, which she lowered mainly because of issues related to weather disruptions and Olympic partnership marketing expenses.
She maintained her "outperform" rating and raised her price target to $116 (Canadian) from $114.
The analyst consensus price target for Canadian Tire over the next year is $108.27, according to Thomson Reuters.
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In other analyst actions:
UBS cut its price target on Lululemon Athletica to $46 (U.S.) from $60 and maintained a "neutral" rating.
Dundee Securities upgraded Renegade Petroleum to "buy" from "neutral" and cut its price target to $1.40 (Canadian) from $1.45.
Canaccord Genuity downgraded Golden Queen Mining to "hold" from "speculative buy" and cut its price target to $1.45 (Canadian) from $1.60.
Raymond James upgraded Roxgold to "strong buy" from "outperform" and hiked its price target to $1.20 (Canadian) from $1.
Raymond James upgraded Chevron to "strong buy" from "outperform" and maintained a price target of $132 (U.S.).
JPMorgan downgraded Newmont Mining to "neutral" from "overweight" with a price target of $26 (U.S.).
UBS upgraded Zynga to "buy" from "neutral" and raised its price target to $6 (U.S.) from $4.
Credit Suisse upgraded Devon Energy to "outperform" from "neutral" and raised its price target to $76 (U.S.) from $73.
For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities