Imperial Oil Chairman, President and CEO Rich Kruger at a press conference after the company's annual general meeting in Calgary, Alberta on Thursday, April 24, 2014.Larry MacDougal/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.
Canaccord Genuity analyst Phil Skolnick is advising clients to sell their shares of Imperial Oil Ltd. after its stock price surged far past those of its peers.
Mr. Skolnick acknowledges that Imperial Oil warrants a premium multiple due to perceived protection from its majority owner, ExxonMobil, along with its longer-than-average reserve life. However, its share price has outperformed peers by an average 10 per cent since its last low reached on Feb. 5, and he believes the stock's valuation is overly stretched at this point.
"We reiterate caution going into IMO's Q2 earnings release," says Mr. Skolnick. Imperial Oil is slated to report earnings Aug. 6.
"We do not see a reason to be long going into the earnings release as there could be disappointment around [Alberta oil sands project] Kearl still not having achieved peak volumes. Kearl ramp-up will again be the focus of the quarter. Per a recent meeting with the company, production was still ramping to peak. A positive offset is that we were told that there are fewer residual start-up issues, which means there have been fewer full plant shut-downs. Nevertheless, the bull case, which is peak production being reached, is priced into the stock, in our view."
Mr. Skolnick downgraded Imperial Oil to "sell" from "hold" but raised his target price to $55 (Canadian) from $53. The analyst consensus price target over the next year is $54.97, according to Thomson Reuters.
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Several analysts have hiked their price targets on Canadian National Railway Co. in the wake of its better-than-expected second-quarter results, but the Street has mixed views on whether the stock is still a buy after recent gains.
The company posted earnings per share of $1.03, ahead of the consensus expectation of $1 and up 24 per cent from a year earlier. Its operating ratio - a key metric for railways where a lower number shows increased efficiency - fell to 59.6 per cent, better than Street expectations of 60.5 per cent. The railway also raised its earnings and free cash flow guidance, although this was largely expected.
Desjardins raised its target to $79 (Canadian) from $73 and maintained a "buy rating; Citigroup raised its target to $68 (U.S.) from $66 and maintained a "neutral" rating; Canaccord Genuity raised its target to $69 (Canadian) from $64 and maintained a "hold" rating; BMO Nesbitt Burns raised its target to $76 (Canadian) from $72 and maintained a "market perform" rating. Merrill Lynch raised its price target to $72 (U.S.) from $67.
There was one ratings upgrade: Euro Pacific Canada raised its rating to "buy" from "neutral" and increased its price target to $76 (U.S.) from $63. It cited the potential for higher shipment volumes than its earlier estimates - and expectations for improvement in the operating ratio over the next two years - for the improved outlook.
Canaccord Genuity analyst David Tyerman said that while CN's outlook is promising, the stock looks expensive on many metrics. He values the stock at 15.9 times forward earnings, which is at a premium to peers - but that still suggests negative implied one-year returns.
Desjardins Securities analyst Benoit Poirier is sounding more upbeat. "We continue to believe there is additional upside in CN's share price and recommend investors buy the stock," Mr. Poirier said.
"We expect CN to continue to trade at rich multiples, as the company benefits from several catalysts, including (1) ongoing market share gains, (2) ability to lower its operating ratio below 60 per cent over time, and (3) a solid financial position that should allow the company to continue to buy back shares and potentially increase its dividend payout above 30 per cent in the future. We continue to believe that CN's strong operational network represents a key competitive advantage that should allow the company to outpace peers in terms of volume growth," he added.
The average price target is now $74.98 (Canadian), according to Bloomberg data, with eight buy ratings, 23 holds and no sells.
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"So far, so good" for PrairieSky Royalty Ltd., said BMO Nesbitt Burns analyst Gordon Tait. The oil sands royalty business, which was spun off from Encana Corp. in May to a swell of investor interest, posted earnings for its first 35 days of operations after market close on Monday.
Although PrairieSky's results came in ahead of estimates, Mr. Tait cautioned that these are still early days for the company. His rating and price target on the stock remain unchanged at "outperform" and $45 (Canadian).
"The company has a defined growth strategy, no debt, no capital or operating expense obligations and very little firm-specific risk," Mr. Tait said. "Therefore, we believe PrairieSky is a good choice for investors with a long-term investment horizon looking for an income stream derived from oil and gas properties."
TD Securities analyst Aaron Bilkoski reiterated a "buy" rating and $45 price target. "The key takeaway in our view is that aside from lower gas production (which can be volatile over a short 35 day period in Q2) results were strong with realized pricing, cash costs and lease revenue tracking better than anticipated," he said.
The analyst consensus price target over the next year is $41.63, according to Thomson Reuters data.
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Atco Ltd.'s earnings growth over the next year is likely fully priced into the company's stock, BMO Nesbitt Burns analyst Ben Pham said.
Mr. Pham initiated coverage of the Alberta-based utilities and logistics company with a "market perform" rating and a $54 (Canadian) price target.
"While Atco's earnings-per-share growth is materially ramping higher through 2015, supported by a regulated project backlog that should also improve earnings visibility, we believe this positive outlook is adequately reflected," Mr. Pham said.
The analyst consensus price target for Atco over the next year is $53.20, according to Thomson Reuters data.
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A price cut on Amazon.com Inc.'s cloud computing services is putting pressure on the company's margins, and that pressure should persist through the rest of the year, Citigroup analyst Mark May said.
Investors expected that Amazon may return to margin growth this year, but a significant price cut at Amazon Web Services seems to be the main cause of margin declines this year, Mr. May said. He downgraded the stock to "neutral" from "buy," and lowered his price target to $395 (U.S.) from $414.
"While we would argue that revenue trends for Amazon have been strong and stable, margins have been another story – and investors seem to have grown somewhat frustrated by the lack of leverage and the lack of transparency surrounding the sources of margin pressure," Mr. May said.
Also on the Street today, Cantor Fitzgerald raised its target on Amazon shares to $500 from $425 and maintained a "buy" rating. Jefferies raised its target to $350 from $300 but maintained an "underperform" rating.
The analyst consensus price target over the next year is (U.S.) $412.65, according to Thomson Reuters.
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In other analyst actions:
TD Securities upgraded HudBay Minerals to "buy" from "hold" and raised its price target to $13.50 (Canadian) from $10.
National Bank Financial downgraded Teck Resources to "underperform" from "sector perform" and raised its price target to $26.50 (Canadian) from $25.50.
National Bank Financial upgraded Lundin Mining to "outperform" from "sector perform" and raised its price target to $7.25 (Canadian) from $6.25.
Global Hunter cut its price target on Athabasca Oil to $10 (Canadian) from $12 and maintained a "speculative buy" rating.
Euro Pacific Canada cut its price target on Rogers Communications to $46 (Canadian) from $48 and maintained a "buy" rating. It cited ongoing government pressure to introduce a fourth national wireless carrier.
Jennings Capital initiated coverage on Mega Precious Metals Inc. with a "speculative buy" rating and 25 cents per share price target.
Clarus Securities initiated coverage on ViXS Systems Inc. with a "buy" rating and $3.30 (Canadian) price target.
Citigroup raised its price target on Netflix to $453 (U.S.) from $410 and maintained a "neutral" rating. Cantor Fitzgerald raised its target to $500 from $425 and maintained a "buy" rating. Jefferies raised its target to $350 from $300 but maintained an "underperform" rating.
UBS upgraded Allergan to "buy" from "neutral" and raised its price target to $200 (U.S.) from $180.
Barclays upgraded Hasbro to "overweight" from "equalweight" with a price target of $59 (U.S.).