Kevork Djansezian
Inside the Market's roundup of some of today's key analyst actions. This file will be updated during the trading day. For breaking analyst actions prior to market open every day, read our Before the Bell morning report.
Kirkland Lake Gold Inc.'s Macassa operations continue to struggle and the departure of chief operating officer Mark Tessier has created more uncertainty at an already difficult time for the company, said BMO Nesbitt Burns analyst Brian Quast as he downgraded the stock to "underperform" from "market perform."
Kirkland Lake management hosted a site of the mine in northern Ontario last week. For Mr. Quast, it underlined the risks investors are taking in holding the stock.
"Near-term obstacles are apparent at both the mine and mill and investors will have to wait patiently for a revised plan while new CEO, George Ogilvie, gets a handle on the operation over the coming months," Mr. Quast said in a research note. "With the ramp-up tracking well below plan and no clear path forward, BMO Research is significantly slowing its forecast tonnage ramp-up such that full production is not reached until 2017, two years later than BMO Research's previous estimate and two and a half years later than current guidance."
BMO also reduced its fiscal 2014 production forecast to 142,000 ounces of gold, which is below company guidance of 150,000 to 180,000 ounces.
"Risk has increased significantly for the stock given management turnover, stubbornly high costs in a falling gold price environment, and no clear strategic direction that would lead to a turnaround in the near term," Mr. Quast added.
He cut his price target in half, to $2.50 (Canadian) from $5. Dundee Securities today also cut its price target, to $4 from $5, and reiterated a "neutral" rating.
The average target among analysts is $6.28, according to Thomson Reuters.
========
RBC Dominion Securities analyst Mark Mahaney downgraded AOL Inc. to "sector perform" from "outperform," believing that the stock's powerful rally this year has left little further upside potential in the near term.
AOL shares are up about 50 per cent this year, more than double the 23 per cent return of the S&P 500.
"Given the steady improvement we have tracked with AOL's fundamentals, we believe this outperformance has been fully justified," Mr. Mahaney said in a research note. "From current levels, however, with the stock trading at 7X '14 EV/EBITDA and at the high end of its historic range (3.7X to 7.1X since 2011), we don't see room for material upside."
He maintained a $46 (U.S.) price target. The average analyst target is $46.26.
========
Canaccord Genuity analyst David Tyerman sees shares in Martinrea International Inc. being constrained by more allegations of improper management at the company.
Nat Rea, former vice-chairman and major shareholder, and another plaintiff -- Edward Sorbara -- have added new allegations of management impropriety in ongoing litigation concerning the auto parts company. Among the new claims were improper accounting, including the booking of fictitious profits.
Mr. Tyerman cut his price target to $10.25 (Canadian) from $12.25.
"We are maintaining our hold rating due to the risk that MRE's results will be reduced by management distraction from focusing on operations to addressing the allegations, and/or the need for a new senior management team relating to allegations of improper management and board actions," Mr. Tyerman said in a research note.
The average Street target is $14.38.
========
RBC Dominion Securities analyst Nathan Piper upgraded Parex Resources Inc. to "outperform" from "sector perform" in the wake of the company releasing a cash-flow funded 2014 capital plan that is expected to deliver further production and reserves growth.
"Into 2014, Parex continues to demonstrate an ability to grow production while addressing our previous concern around reserves life (grown to over 4 years)," Mr. Piper said in a research note. "This ability to consistently address preconceptions around high production declines (and short reserves life) associated with the Llanos Basin has caused us to revisit our view on the stock."
Llanos Basin is in Colombia and Mr. Piper now believes management has a clear strategy to build a sustainable 15,000 barrel-per-day light oil business onshore in the country.
He thinks this should make Parex increasingly attractive to potential suitors. "Following the acquisition of other light oil producers (Petrominerales, C&C Energia and Petromagdalena), Parex has reached a scale that could at some point interest the major heavy oil producers such as Ecopetrol and (possibly) Pacific Rubiales," he said.
Mr. Piper raised his price target to $11 (Canadian) from $8. The average analyst target is $8.18.
========
BMO Nesbitt Burns analyst Joel Tiss downgraded Deere & Co. to "market perform" from "outperform," concerned that earnings of the heavy equipment manufacturer will come under cyclical selling pressure over the next couple of years.
Deere operates in three segments: agriculture, construction and forestry, and financial services. Mr. Tiss predicts the company will earn $7 (U.S.) a share in fiscal 2015, falling to $6.50 in 2016, "as impacts from large factors such as weather, global planted acres, and various government financing/tax incentive measures are extremely difficult to predict but appear to be headwinds over the next several years."
"Furthermore, with a significant amount of equipment sold over the past decade, we see very little pent-up demand, particularly in the high horsepower machines, with Deere also noting in its recently released fiscal year 2014 guidance that it expects a negative mix shift as the sale of larger agricultural machines declines faster than total equipment sales," he said.
Mr. Tiss also cut his price target to $84 from $95, cautioning investors that better buying opportunities will likely arise. "As investors begin preparing for what is essentially the unknown downside in EPS, there historically has been a decline in the share price to chase the worst-case scenario. This process typically takes stocks well below fair value, which we will await in order to create a better buying opportunity at a more attractive price or time period," he commented.
The average target is $86.74.
========
In other analyst actions:
Goldman Sachs downgraded Campbell Soup to "neutral" from "buy" and cut its price target to $42 (U.S.) from $48.
Goldman Sachs upgraded Alcoa to "buy" from "neutral" and raised its price target to $11 (U.S.) from $8, saying its aluminum business is under-appreciated.
CIBC World Markets upgraded Pretivm Resources to "sector outperformer" from "sector performer" and kept an $8 (Canadian) price target.
Dundee Securities added Transglobe Energy and Osisko Mining to its top picks in the resource sector. Transglobe has a "buy" rating and $13 (Canadian) price target at Dundee and Osisko has a "buy" rating and $7 (Canadian) target.
Euro Pacific Canada upgraded Novadaq Technologies to "buy" from "hold" and raised its price target to $23 (U.S.) from $16.
RBC Dominion Securities upgraded Heartland Express to "outperform" from "sector perform" and hiked its target to $21 (U.S.) from $16.
Credit Suisse raised its price target on Global Payments to $67 (U.S.) from $62 and maintained an "outperform" rating.
UBS raised its price target on Foot Locker to $45 (U.S.) from $39 and maintained a "buy" rating.
UBS raised its price target on Aetna to $82 (U.S.) from $76 and maintained a "buy" rating.
Wells Fargo initiated coverage on Twitter with a "market perform" rating and a valuation range of $36-39 (U.S.).
=======
For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities