A worker on an Athabasca Oil Corp. oil rig.Handout
Inside the Market's roundup of some of today's key analyst actions. This file will be updated during the trading day.
Raymond James analyst Chris Cox downgraded Athabasca Oil Corp. to "market perform" from "outperform" as uncertainty continues to swirl over the fate of its Dover oil-sands project. He also cut his price target to $7.50 (Canadian) from $10.50. Shares in the company plunged 7 per cent in early trading.
Athabasca earlier this year announced plans to sell a 40 per cent stake in the Dover oil-sands venture in Alberta for $1.3-billion (Canadian) to partner PetroChina through a put option. But doubts grew whether the deal would get done after reports of Chinese oil executives with connections to Canada being arrested. The reports, in Chinese media, have rocked Athabasca's share price and come as China continues with a widespread crackdown on senior officials facing allegations of corruption.
"We believe it is prudent for investors at this juncture to sufficiently risk the probability of both the receipt of the Dover put proceeds, as well as the potential price and timing. Perhaps just as importantly, we believe the market will likely continue to be concerned regarding the intentions of PetroChina, at least as it pertains to the Dover put proceeds, and we don't foresee any improved clarity on this issue for some time," Mr. Cox said in a research note.
Athabasca Oil this morning issued a statement following Mr. Cox's downgrade, but it did not shed much light on the issue. "The company confirms that it continues to work with Phoenix Energy Holdings Limited to close the transaction in accordance with the terms of the put/call option agreement. Athabasca will update the market on material developments," it said. Phoenix Energy Holdings is the Canadian subsidiary of PetroChina.
Mr. Cox added that the difficulties in closing the Dover deal raises some longer-term issues. "We believe the risks around the Dover put also raise concerns regarding the potential pace of development in the Duvernay, the ability of the company to secure a joint venture partner down the road and the ability of the company to pursue a joint venture strategy in the Duvernay that would allow the company to maximize the value of those lands," he said.
The analyst consensus price target for Athabasca Oil over the next year is $9.82, according to Thomson Reuters data.
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TransCanada Corp. has been downgraded by Credit Suisse analyst Andrew Kuske after a sharp run-up in the company's share price.
The reasons behind the downgrade, which comes after TransCanada shares climbed 11 per cent over the past month, are diverse, explained Mr. Kuske.
"There are four primary reasons for the downgrade," he said. "(a) Limited excess return to our $58 (Canadian) target; (b) our view of TRP's gradual plan towards improved capital efficiency; (c) recent declines in selected forward power markets; and, (d) we believe a poor risk-reward relationship going into the quarterly results. In our view, the potential offset to these concerns is TransCanada moving toward a more capital efficient model."
On the bright side, he believes TransCanada's asset base is well positioned in certain areas, including in Alberta's oil sands, in liquefied natural gas developments on Canada West Coast, and in low-cost generation projects in structurally tight power markets.
Mr. Kuske downgraded TransCanada to "neutral" from "outperform" and maintained his $58 (Canadian) price target. He also removed the stock from Credit Suisse's Global Focus list - its favourite investment ideas. The analyst consensus price target over the next year is $55.84, according to Thomson Reuters.
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Desjardins Securities upgraded Granite REIT to "buy" from "hold" and hiked its price target to $45 (Canadian) from $43.
"Key lease extensions, the Mexico portfolio sale and the recent debenture financing/redemption have reduced Granite's risk profile and should provide management with a stronger base from which to grow and diversify," explained Desjardins analyst Michael Markidis.
He added that the company's existing equity base should be able to support more than $1-billion (Canadian) of acquisitions, which would provide significant potential upside to earnings and its distribution to unitholders over time.
The analyst consensus price target over the next year is $42.61.
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Forest products company Cascades Inc. is facing margin pressure and limited earnings growth, said RBC Dominion Securities analyst Hamir Patel in downgrading the stock today.
Rising costs for recycled fibres should outpace price gains, leading to some "modest margin erosion," Mr. Patel said. Meanwhile, new capacity in tissue paper could push industry margins below historical average for several years, he explained.
His updated five-year forecast assumes Cascades' EBITDA will see little growth. Mr. Patel downgraded the stock to "sector perform" from "outperform," and lowered his price target to $7.50 (Canadian) from $9.
The analyst consensus price target for Cascades over the next year is $8.25.
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Coming off a big recent acquisition, TransForce Inc. could follow it up with a spin off or sale of one of its trucking divisions, as deal activity heats up in the transportation space, RBC Dominion Securities analyst Walter Spracklin said.
Last week, TransForce announced a $495-million deal to acquire Contrans Group Inc., the latest in a string of recent trucking mergers and acquisitions. Management highlighted that TransForce's truckload division, when including Contrans Group, is comparable in size to some pure-play, publicly traded U.S. truckload companies.
"Accordingly, we believe it is increasingly likely that truckload operations are spun-out within the next 12 to 18 months (if not sooner)," said Mr. Spracklin.
"As TransForce accelerates its strategic transformation by building density and developing scale across its operating divisions, we believe the stock is increasingly attractive from a spin-out/'sale-of-the-parts' perspective," Mr. Spracklin added.
He raised his price target on TransForce stock to $33 (Canadian) from $29 and maintained an "outperform" rating.
Several other analysts also raised their targets on the stock today, bringing the average 12-month target to $30.83, according to Bloomberg data. There are nine buy ratings, four hold and no sells.
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CIBC World Markets initiated coverage on Journey Energy Inc. with a "sector performer" rating and $12.75 (Canadian) price target.
Journey Energy is a dividend-paying, junior oil explorer and producer focused on a number of plays in central and souther Alberta that began trading last month.
"JOY is focused on a significant number of smaller, discrete oil pools that add up to an inventory of 280 locations. That being said, about 65 per cent still need to be proven commercial through exploration drilling and we are hesitant to pay up for that inventory at this time," said CIBC analyst Adam Gill in a research note
"We believe JOY has a solid financial position, with a total payout of 106 per cent and a strong balance sheet at 0.8x discount cash flow in 2015, giving us confidence in dividend sustainability. ... That being said, while the yield is attractive at 6.2 per cent (peer average is 5.9 per cent), there is limited clarity on capital appreciation until we gain further evidence of exploration turning into development," he said.
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In other analyst actions:
Dundee Securities downgraded Cameco to "neutral" from "buy" due to recent rapid share price appreciation. It kept a $23 (Canadian) price target.
Raymond James downgraded Mullen Group to "underperform" from "market perform" and maintained a $27.50 (Canadian) price target.
Raymond James downgraded Coeur Mining to "market perform" from "outperform" and cut its price target to $10 (U.S.) from $13.50.
Industrial Alliance Securities downgraded Gildan activewear to "buy" from "top pick" and hiked its price target to $76 (Canadian) from $74.
BMO downgraded Pfizer to "market perform" from "outperform" and cut its price target to $31 (U.S.) a share from $34.
Barclays downgraded ExxonMobil to "underweight" from "equal weight" but raised its price target to $105 (U.S.) from $100.
JPMorgan upgraded Xerox to "neutral" from "underperform" and raised its price target to $14 (U.S.) from $13.
Goldman Sachs added Calpine to its Americas conviction buy list and raised its price target to $27 (U.S.) from $25.
Wunderlich upgraded Time Warner to "buy" from "hold" and raised its target to $190 (U.S.) from $146.
UBS downgraded Monster Beverage to "neutral" from "buy" and cut its price target to $73 (U.S.) from $80.
Darcy Keith