A Canadian National locomotive is seen Monday, February 23, 2015 in Montreal. THE CANADIAN PRESS/Ryan RemiorzThe Canadian Press
Inside the Market's roundup of some of today's key analyst actions. This file will be updated often during the trading day so check back for new details.
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Canadian National Railway Co. faces "a more challenging market environment," according to Desjardins Securities in downgrading the stock today.
The nation's largest railway posted first-quarter profits and revenues slightly ahead of analysts' expectations after the markets closed on Monday. However, management cut its growth outlook for energy-related shipments to 40,000 carloads from 75,000 in light of the collapse in oil prices.
The company is sticking by its target of boosting earnings per share by double-digits this year, but may need the Canadian dollar to stay at about 80 cents (U.S.) to achieve this goal.
"In light of the weaker economic fundamentals in certain segments (grain, coal crude) highlighted by management for the remainder of 2015 and beyond, we are switching to a more cautious approach on CN at current levels," said analyst Benoit Poirier. "We note that CN has been the second-best performer in our coverage universe in 2014 (+32 per cent year-over-year) and believe that the shares are currently well priced as our target reflects multiples of 18 times price-to-earnings and 10.5 times enterprise value to earnings before interest, taxes, depreciation, and amortization on aggressive 2017 estimates."
Mr. Poirier lowered the stock to "hold" from "buy" and cut his price target to $89 (Canadian) from $93.
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Encana Corp. "is not a value trap," says Morgan Stanley in upgrading the Canadian stock today.
The increasingly oily energy producer is set to ramp up liquids production over the next year following several large acquisitions in 2014, while selling off non-core assets will help bolster its balance sheet, according to analyst Benny Wong.
The company's sharpened focus and underperformance relative to other North American energy producers makes the risk/reward proposition attractive.
"ECA has materially transformed and sharpened the focus of its portfolio with an aggressive acquisitions and divestitures campaign leaving it now with seven core growth plays versus trying to fund over 20 plays in 2013," said Mr. Wong. "The next phase of ECA's transformation is being be able to demonstrate operational execution."
Encana, he notes, is expected to post higher growth in liquids than any of its American competitors through 2018.
The analyst upgraded the stock to "overweight" from "equal-weight" and hiked his price target to $18 (U.S.) from $15.
This price target implies a total return of 35 per cent, which equates to the most potential upside among Canadian energy companies in Morgan Stanley's coverage universe.
The average analyst price target is $14.17.
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BMO Nesbitt Burns analyst Peter Sklar is concerned The Jean Coutu Group may support its pharmacy franchisees if the Quebec provincial government goes ahead with legislation to reduce public-plan dispensing fees paid to the pharmacy industry by $177-million, or approximately 11 per cent.
Mr. Sklar said the impact of the legislation would primarily affect the revenue of pharmacy franchisees and would have little impact on Jean Coutu. It would be limited to royalties earned on the reduced revenue, and he estimates that the impact on earnings per share may be only a single cent annually.
However, if Jean Coutu decides to provide support to make up the difference, the negative impact on earnings could rise to as much as 19 cents per share.
"We believe these concerns will weigh on the stock's multiple until the dispensing fee regulations are revised, and until Jean Coutu provides guidance as to its intention on whether to subsidize the potential negative impact to the underlying retail economics of the pharmacist-franchisees," he said.
Mr. Sklar maintained his "market perform" rating but dropped his target price from $27 to $26 (Canadian). The analyst consensus is $25.05, according to Thomson Reuters.
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DIRTT Environmental Solutions Ltd. should continue to see "robust" revenue growth in the coming years as it benefits from growth in its distribution partners and movement into new verticals, including residential housing and hospitality, said Raymond James analyst David Quezada.
"We regard DIRTT as a unique company with a compelling combination of earnings growth, value proposition and long-term potential," said Mr. Quezada. The company manufactures prefabricated interiors.
The analyst expects strong year-over-year growth despite the company's first-quarter guidance that indicates it won't match the "breakout 4Q14 performance."
Though a recent run on DIRTT shares has increased the price by 117 per cent in the year to date, Mr. Quezada maintained his "strong buy" rating and raised his target price from $7.50 to $10 (Canadian). The analyst consensus is $8.53.
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Credit Suisse analyst Nathan Littlewood upgraded Labrador Iron Ore Royalty Corp. to "outperform" from "neutral," believing the market is overlooking some positives for the company amid weak conditions in the iron ore market.
Labrador Iron Ore Royalty holds a 15.10 per cent equity interest in Iron Ore Company of Canada and receives a 7 per cent royalty and a 10 cent per tonne commission on all iron ore products produced, sold and shipped by IOC.
He said: "Although [Labrador Iron Ore/Iron Ore Company of Canada's] headline pricing risk is obvious, the market appears to be overlooking some significant offsets in the form of volume, forex and freight rates."
Mr. Littlewood said Labrador's primary source of income, at this point, is its pellet plant. Given iron ore supply closures in China and an increased focus on pollution, he feels that focus bodes well for the company.
"We continue to believe that the IOC asset will survive the current commodity cycle, and that the market's concerns regarding closure of this asset are overdone," the analyst said.
Mr. Littlewood trimmed his target price to $15 from $17 (Canadian). Consensus is $16.43.
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The average analyst price target is $88.61.
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Bankers Petroleum Ltd. was upgraded to "sector outperform" from "sector perform" at CIBC.
Sterling Resources Ltd. was lowered to "hold" from "speculative buy" at TD Securities. The 12-month target price is 25 cents (Canadian) per share.
Brick Brewing Co. was raised to "buy" from "market perform" at Cormark Securities. The 12-month target price is $1.90 (Canadian) per share.
Savanna Energy Services Corp. was raised to "buy" from "speculative buy" at Cormark Securities. The 12-month target price is $3.50 (Canadian) per share.
Spectrum Brands Holdings Inc. was rated new "overweight" at KeyBanc. The 12-month target price is $105 (U.S.) per share.
Clorox Co. was rated new "sector weight" at KeyBanc.
Home Depot Inc. was rated new "hold" at Cantor Fitzgerald. The 12-month target price is $108 (U.S.) per share.
HubSpot Inc. was rated new "buy" at Needham & Co. The 12-month target price is $50 (U.S.) per share.
Shake Shack Inc. was downgraded to "hold" from "buy" at Stifel.
Williams-Sonoma Inc. was rated new "hold" at Cantor Fitzgerald. The 12-month target price is $77 (U.S.) per share.
Summit Materials Inc. was rated new "equal-weight" at Barclays. The target price is $25 (U.S.) per share. The company was rated new "buy" at Stifel with a target price of $28. It was rated new "outperform" at RBC Capital with a target price of $28. Summit was also rated new "buy" at BB&T Capital with a target price of $29.
Ultra Clean Holdings Inc. was downgraded to "market perform" from "outperform" at Northland Securities. The 12- month target price is $8 (U.S.) per share. The stock was also downgraded to "hold" from "buy" at Craig-Hallum. The 12-month target price is $7.50 per share.
Boulder Brands Inc was rated new "Neutral" at Wedbush by equity analyst Philip Terpolilli. The 12-month target price is $11.00 per share.
Compugen Ltd was rated new "Outperform" at Oppenheimer by equity analyst Ling Wang. The 12-month target price is $11.00 per share.
Calavo Growers Inc was rated new "Buy" at Janney Montgomery by equity analyst Eric Larson. The 12-month target price is $55.00 per share.
Eversource Energy was downgraded to "Neutral" from "Buy" at UBS by equity analyst Julien Dumoulin-smith. The 12-month target price is $53.00 per share.
La Jolla Pharmaceutical Co was rated new "Outperform" at Oppenheimer by equity analyst Ling Wang. The 12-month target price is $43.00 per share.
Laredo Petroleum Inc was downgraded to "Market Perform" from "Outperform" at Raymond James by equity analyst John Freeman.
Paychex Inc was raised to "Neutral" from "Underweight" at JPMorgan by equity analyst Tien-tsin Huang. The 9-month target price is $48.00 per share.
Republic Airways Holdings Inc was downgraded to "Hold" from "Buy" at Evercore ISI by equity analyst Duane Pfennigwerth. The 12-month target price is $14.00 per share.
The Rubicon Project Inc was rated new "Outperform" at Raymond James by equity analyst Aaron Kessler. The 12-month target price is $23.00 per share.
SolarCity Corp was rated new "Outperform" at Northland Securities by equity analyst Colin Rusch. The 12-month target price is $65.00 per share.
Torchmark Corp was downgraded to "Underweight" from "Overweight" at Barclays by equity analyst Jay Gelb. The target price is $53.00 per share.
The WhiteWave Foods Co was rated new "Neutral" at Janney Montgomery by equity analyst Eric Larson. The 12-month target price is $46.00 per share.
Zafgen Inc was rated new "Outperform" at FBR Capital Markets by equity analyst Christopher James. The 12-month target price is $60.00 per share.
With files from Bloomberg News