An exterior view of a hardware store Rona Inc., in Brossard, Que., on Jan.30, 2013.Christinne Muschi/The Globe and Mail
Inside the Market's roundup of some of today's key analyst actions. This file will be updated during the trading day.
Rona Inc. posted the results from a "breakthrough quarter" on Tuesday, adding to confidence in the company's turnaround plan.
"Management is in the early innings," Desjardins Securities analyst Keith Howlett said. "From our perspective, the first two innings were successfully completed without errors — first, the business was stabilized after a dramatic downsizing, and second, organic growth of earnings per share has commenced."
The plan, which the Quebec-based home renovations retailer announced in June 2013, was designed to put an end to years of deteriorating profitability. Eleven unprofitable stores in Ontario and British Columbia were closed.
Rona has cautiously resumed expanding the chain, with five new stores due to open in 2015.
The company's third-quarter results were basically in line with consensus expectations, but were up by 32 per cent year over year.
"There remains much work to be done in repositioning and upgrading store formats, adjusting merchandise assortments, improving the supply chain and adjusting to the digital age," Mr. Howlett said. "While industry conditions remain challenging, management has regained control."
He upgraded the stock to "buy" from "hold" and raised his target price to $15 (Canadian) from $13.50. The analyst consensus price target over the next year is $13.13, according to Thomson Reuters data.
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Operational inconsistency and debt issues have resulted in a downgrade for Yamana Gold Inc. from RBC Dominion Securities analyst Dan Rollins.
Yamana has been struggling with operational consistency since mid-2013, explains Mr. Rollins, with challenges at its non-core operations overshadowing steady results from its core operations. Its share price during this period has underperformed its peers by 20 per cent, compared to outperformance of peers by 60 per cent in 2011 and 2012.
"We downgrade Yamana to sector perform from outperform as we believe the shares will trade in line with its peers until quarter-over-quarter operational consistency is demonstrated and net debt is reduced," said Mr. Rollins. "We expect that if Yamana can deliver on these elements, investor confidence would return and the shares re-rate higher, similar to what occurred in 2011/2012."
Mr. Rollins lowered his target price to $6.50 (U.S.) from $8. The analyst consensus price target is $7.90.
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Several analysts cut their price targets on Aecon Group Inc. after the construction company's third-quarter results came in below expectations and sparked a 12 per cent plunge in its stock price Tuesday.
Among them: BMO Nesbitt Burns cut its target to $17 (Canadian) from $20; Raymond James trimmed its target to $18 from $21; and AltaCorp Capital Research cut its target to $20 from $25. But all three research firms maintained an "outperform" rating. The average price target is now $18.80, according to Bloomberg data.
Aecon reported adjusted EBITDA of $76.5-million, missing the mean Street estimate of $85-million. Total revenue was $840-million, down 6 per cent from a year ago and below the consensus estimate of $911-million, due to delays related to external factors and a more cautious approach being adopted by clients.
"We are frustrated by this stock and while it may be tempting to throw in the towel, selling the stock at current levels feels like capitulation, which is generally when stocks should be bought," commented BMO analyst Bert Powell.
Raymond James analyst Frederic Bastien pointed out that the third quarter was not all that bad, especially considering there's a strong work backlog of $2.67-billion that points to a busy 2015.
"We appreciate why investors got hung up on the earning miss and management's more cautious outlook yesterday. But this is lumpy construction business and we urge them not to miss the forest for the trees. Project execution and bidding discipline have improved markedly under Teri McKibbon's leadership, and Aecon's strategic shift in recent years to larger, more sophisticated and higher-margin projects is clearly paying off. For proof consider that the firm secured earlier this week an additional $155-million of fabrication and module assembly work from one of the energy majors. The company may fall short of its 2015 EBITDA margin target of 9 per cent if market conditions persist, but we are still confident it can advance toward that target and deliver strong growth over our forecast horizon," Mr. Bastien said in a note.
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The prospect of higher natural gas prices should benefit shareholders of Pine Cliff Energy Ltd., says Clarus Securities analyst Robert Paré.
Pine Cliff announced third-quarter 2014 results that were in line with expectations. "We have consistently and continue to advocate Pine Cliff as a core natural gas holding for investors on both its torque to the commodity and the quality of its underlying asset base and management team," he says. "With the arrival of winter in the U.S. and worsening forecasts for the severity of conditions this season, we believe Pine Cliff offers significant upside over the next several months on improving natural gas pricing expectations."
He also believes recent weakness in crude oil prices will present M&A opportunities for Pine Cliff as more levered companies look to sell non-core assets.
Mr. Paré maintains his "buy" rating and $2.25 (Canadian) price target. The analyst consensus price target is $2.18, according to Thomson Reuters data.
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Plaza Retail REIT investors will be happy to know that a distribution increase is on its way, says Desjardins Securities analyst Michael Markidis.
The REIT's third-quarter 2014 funds from operations came in a 9 cents per unit, ahead of Mr. Markidis' 8 cents estimate. It has also announced a 4 per cent distribution increase commencing with the January distribution.
"We see several favourable attributes to the Plaza story, including its value-add investment philosophy and superior distribution growth track record," he says.
Mr. Markidis maintains his "hold" rating due to the REIT's geographic concentration in Québec and eastern Canada, which, in his view, carry below-average economic growth prospects. He also maintains his target price of $4.25 (Canadian). The analyst consensus price target is $4.50.
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Encana Corp. enjoyed a strong third quarter as the company continues to accelerate its shift from a natural gas producer to a more balanced producing entity, commented AltaCorp Capital Research analyst Nicholas Lupick.
"Financial results beat expectations slightly despite production coming in slightly under – underscoring the company's more balanced cash flow weighting to liquids," Mr. Lupick said. "Overall we are encouraged by the pace of Encana's portfolio transition and highlight that investor sentiment will now focus on measured execution in the seven core plays."
He reiterated an "outperform" rating and $28 (U.S.) price target. The analyst consensus price target over the next year is $25.48 (U.S.).
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In other analyst actions:
TD Securities upgraded Allied Properties Real Estate Investment Trust to "buy" from "hold" with a price target of $41 (Canadian).
TD Securities upgraded Semafo to "buy" from "hold" with a price target of $4.50 (Canadian).
Macquarie upgraded Pattern Energy Group to "outperform" from "neutral" with a price target of $40 (Canadian).
CIBC World Markets raised its price target on Brookfield Asset Management to $52 (U.S.) from $47.50 and maintained a "sector performer" rating.
Sterne Agee downgraded D.R. Horton to "neutral" from "buy" and lowered its price target to $23 (U.S.).
Sanford Bernstein downgraded JPMorgan Chase to "market perform" from "outperform" with a price target of $65 (U.S.).
Topeka Capital initiated coverage on MasterCard with a "hold" rating and 12-month price target of $87 (U.S.).
With files from Bloomberg