Thursday's analyst upgrades and downgrades

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Inside the Market's roundup of some of today's key analyst actions. This file will be updated during the trading day.

Credit Suisse has raised its price targets on all the major Canadian banks by 15 per cent as it transferred coverage to a new analyst, Kevin Choquette.

Mr. Choquette downgraded his rating on one of them, Bank of Montreal, now calling it a "neutral" instead of "outperform."

"Our downgrade is premised on strong relative share price performance and a high relative price-to-earnings multiple relative to its industry-low profitability ... as well as an expected slowdown in earnings growth in the highly competitive U.S. market," he explained.

His price target on BMO is now $88 (Canadian), up from $79. His new price target on Bank of Nova Scotia is $84 (rated "outperform), on CIBC $110 (rated "neutral"), on National Bank $50 (rated "neutral"), on Royal Bank $92 (rated "outperform"), and on TD Bank $63 (rated "neutral").

For the sector overall, he commented, "We expect superior shareholder returns for the banks to continue, based on steady gradual P/E multiple expansion, high dividend yields, high and sustainable profitability, high capital generation, solid earnings growth despite the low interest rate environment, and slow credit growth as well as significant positive earnings leverage to higher interest rates. We see reasonable earnings growth for the bank group in the 8 per cent to 10 per cent range, with potential to accelerate into low double digits with stronger economic growth and/or interest rate increases. Credit is expected to remain benign for the next three years, and we believe net interest margins have stabilized. We expect earnings-accretive share buybacks to be eventually supportive to the share prices, with active and steady repurchases at 4 per cent to 5 per cent of outstanding to begin in earnest in 2015 and 2016."

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Credit Suisse downgraded Sun Life Financial Inc. to "neutral" from "outperform" based on a high relative price-to-earnings multiple and strong share price performance relative to peers. But it raised its price target to $43 (Canadian) from $41, commenting that Sun Life "has solid growth prospects based on its wealth management platform and competitive positioning in higher growth Asian markets as well as earnings growth from its cost efficiency programs."

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Credit Suisse downgraded Industrial Alliance Insurance and Financial Services Inc. to "underperform" from "neutral" and hiked its price target to $52 (Canadian) from $49. It cited a 17 per cent increase in its share price in the past six weeks and a high relative price-to-earnings multiple against the lifeco group versus its historical mean. "We believe the market has already fully factored in the positive news from the most recent investor day," Credit Suisse added.

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A 'significant' funding gap at Talisman Energy Inc. has resulted in a downgrade from Credit Suisse analyst Jason Frew.

Mr. Frew explains that his view on Talisman has been predicated on deleveraging and improving financial metrics, areas in which the company has had some success this year. The process has been slow and contingent on continued asset sales, some of which have been executed on.

"However, while the core business of the company has been performing well with the second quarter demonstrating 4 per cent production growth quarter/quarter, non-core North Sea continues to negatively impact the funding balance and will likely continue to do so until Talisman can dilute/divest its interest in the region," he says.  "Until such a time, we view proceeds from asset sales as the likely solution to plug and balance the gap in overall funding."

Net of dividends and before asset sales, Mr. Frew estimates a funding shortfall this year and next of approximately $1-billion (U.S.). He adds that despite media speculation about M&A activity, a company-wide sale of Talisman is unlikely, given the funding gap that exists.

Mr. Frew downgraded Talisman to "neutral" from "outperform" and maintained his target price of $12 (U.S.)

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After an increase in its share price of about 35 per cent this year so far, First Quantum Minerals Ltd. looks to be fairly valued, RBC Dominion Securities analyst Fraser Phillips said.

On Wednesday, the company reported second-quarter earnings, which came in slightly below analyst expectations.

"First Quantum remains one of our favourite mining investments, with one of the highest growth profiles in our global mining coverage universe, industry-leading project execution expertise, and exposure to both copper and nickel," Mr. Phillips said.

But the stock's recent run warrants a downgrade to "sector perform" from "outperform," at a target price of $27 (Canadian), up from $26.

"We will look for an opportunity to buy the shares again in a seasonal correction in September/October," Mr. Phillips said.

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Major Drilling Group International Inc. shares have limited upside over the next year, as the company now faces soft market conditions after a substantial rebound, RBC Dominion Securities analyst Sam Crittenden said.

The New Brunswick-based company, which provides drilling services to the mining industry, has rallied by almost 40 per cent since bottoming out in August.

Now, excess capacity in the drilling space could put pressure on prices, the analyst said.

"We believe MDI can continue to generate positive free cash flow and maintain the dividend through the down cycle due to a variable cost structure and strong balance sheet," Mr. Crittenden said.

He downgraded the stock to "sector perform" from "outperform" and reiterated a $9 (Canadian) price target.

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In other analyst actions:

Canaccord Genuity downgraded Thomson Reuters to "hold" from "buy" and kept a $38 (U.S.) price target. CIBC World Markets raised its price target to $40 and reiterated a "sector performer" rating.

Desjardins Securities downgraded Agnico Eagle Mines to "hold" from "buy" and kept a $46 (Canadian) price target. BMO Nesbitt Burns also downgraded the stock, to "market perform" from "outperform" and maintained a $45 (U.S.) price target.

Raymond James raised its price target on Open Text to $64 (Canadian) from $57.50 and maintained an "outperform" rating. Credit Suisse upgraded its rating on the company to "outperform" from "neutral" and raised its price target to $65 (U.S.) from $51.

CIBC World Markets downgraded Birchcliff Energy to "sector performer" from "sector outperformer" and cut its price target to $12.50 from $14.

CIBC World Markets upgraded Trican Well Service to "sector performer" from "sector underperformer" and raised its price target to $19 (Canadian) from $18.

Susquehanna initiated coverage on Lululemon Athletica with a "positive" rating and $49 (U.S.) price target.

Deutsche Bank downgraded Kraft Foods Group to "hold" from "buy" and cut its price target to $59 (U.S.) from $62.

UBS downgraded Whole Foods Market to "neutral" from "buy" and slashed its price target to $41 (U.S.) from $48.