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Thursday's analyst upgrades and downgrades

FILE - In this Thursday, March 2, 2017, file photo, Snapchat co-founders Bobby Murphy, left, and CEO Evan Spiegel ring the opening bell at the New York Stock Exchange as the company celebrates its IPO. (AP Photo/Richard Drew, File)

Inside the Market's roundup of some of today's key analyst actions

Shares of Snapchat parent Snap Inc. (SNAP-N) rose nearly 4 per cent in trading Thursday, rising from its lowest-ever close on Wednesday, after investment firm Stifel Nicolaus upgraded the stock, saying the recent pullback in the stock -- which was sparked by a downgrade earlier this week by Morgan Stanley, one of the company's IPO underwriters -- was overdone.

Stifel Nicolaus analyst Scott Devitt upgraded the stock to "buy" from "hold" and kept his price target of $22 (U.S.). The consensus is $20.27, according to Thomson Reuters.

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"We view shares as a compelling risk / reward opportunity and upgrade SNAP shares to 'buy' from 'hold.' Our 12-month, DCF-based [discounted cash flow] Price Target of $22 remains unchanged," he said.

On Monday, the stock closed below its $17 IPO price for the first time.

Currently, 16 of the 36 brokerages covering the stock have a "hold" rating. Eleven rate it "buy" or higher and seven have a "sell" or lower recommendation. The median price target of $19.50 has fallen about 19 percent in the last three months, according to Reuters.

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WestJet Airlines Ltd. (WJA-T) recently reported strong operational metrics for the second quarter, and Beacon Securities Ltd. upgraded the stock.

"The company's closely-watched capacity additions came in +6.3 per cent year over year, inline with guidance and slightly below our expectations of 6.5 per cent. More significantly, load factor was a strong (and a record for Q2) 82.8 per cent (we were looking for 80.8 per cent), up 200 bps [basis points] year over year. This was driven by significant improvement in traffic, which was up 8.9 per cent year over year(versus our forecast of +5.7 per cent )," analyst Ahmad Shaath said.

He upgraded WestJet to "buy" from "hold" and boosted his price target to $28.50 from $22.50. The consensus is $23.40.

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"Consequently, we have factored the operational statistics into our model, and reflected the favourable fuel and FX [foreign exchange]environment in our estimates. The most significant revision is our new fuel estimates (now 61 cents/litre versus 65 cents/litre previously), which (all else equal) added 8 cents and 28 cents to our EPS estimate for Q2/FY17E and FY17E, respectively. We have also revised some of our costs estimates on the back of the strength in Canadian dollar versus the U.S. dollar, which had positive but marginal impact on our estimates. On the revenue side, we have revised our RASM [revenue per available seat mile] estimate driven by the overall favourable demand environment, which is supported by the positive tone from Bank of Canada on the overall health of the economy," he said.

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Growth prospects for Gildan Activewear Inc. (GIL-N; GIL-T) are "muted" in the near term, and that's led Canaccord Genuity to downgrade the stock.

Ahead of the company reporting its second quarter results, Canaccord Genuity downgraded the stock to "hold" from "buy" and reiterated its target price at $32 (U.S.). The consensus is $32.86.

"For the quarter, we are forecasting EBITDA [earnings before interest, taxes, depreciation and amortization] of $157-million, below consensus of $160-million, while our EPS [earnings per share] estimate of 46 cents, is a penny below consensus of 47 cents, but above last year at 41 cents," said analyst Derek Dley.

"While we continue to like the medium- and long-term prospects for Gildan, over the remainder of 2017, outside of a meaningful acquisition, we believe year over year earnings growth will remain relatively muted, and are comfortable moving to the sidelines given the recent strength in Gildan's share price. Gildan's shares have appreciated 13.9 per cent since the beginning of 2017, driven in part by the company's strong Q1/17 earnings results, coupled with management reiterating Gildan's 2017 EPS guidance of $1.60-1.70," he said.

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"Our target price represents 18.9 times our 2017 EPS estimate of $1.69, or 16.9 times our 2018 EPS estimate of $1.89," he said.

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Alimentation Couche-Tard Inc. (ATD.B-T) reported earnings that were below the estimates of Desjardins Capital Markets, and as a result the firm has trimmed its target price for the company's stock.

"Couche-Tard reported adjusted 4Q FY17 EPS of 52 cents (U.S.), below our estimate of 54 cents and ahead of consensus of 46 cents. Year-ago adjusted EPS was 38 cents. A shortfall in adjusted EBITDA was more than offset by a lower-than-forecast tax rate and lower depreciation. The shortfall in EBITDA was driven by lower-than-forecast U.S. fuel margins, attributed by management to short-term shifts in volume and margins by region, partially due to weather. Fuel margins have been high in 1Q FY18 to date," said analyst Keith Howlett.

He kept his rating at "buy" but cut his price target to $74 (Canadian) from $76. The consensus is $75.31.

"We are increasing our FY18 EPS estimate to $2.74 (U.S.) (from $2.52) to include the CST Brands acquisition which closed on June 28. We are introducing our FY19 EPS estimate of $3. Our target price is based on 20 times FY18 EPS, translated into Canadian dollars at the 12-month forward rate. In terms of acquisitions, 10 months of CST Brands earnings are now in our FY18 EPS estimate. We add $4 (Canadian) to our target price in respect of the pending Holiday Stationstores acquisition, which is expected to close in 4Q FY18," he said.

"Couche-Tard has an extremely crowded agenda as it continues to digest Topaz in Ireland, the Shell sites in Denmark and the Esso sites in Canada, while integrating CST Brands in the U.S. and Canada, and preparing to absorb Holiday Stationstores (based in Minnesota). Numerous foodservice initiatives are underway in multiple markets, as is the global rebranding to Circle K. Contemporaneously, investor anxiety over the timing of the impact of electric and hybrid vehicles has escalated. In our view, innovation may have to take precedence over acquisitions if faster progress is to be achieved in foodservice," he said.

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Medical marijuana producer Aphria Inc. (APH-T) reported solid fourth quarter and full-year results "that were slightly above our top-line forecasts and a solid beat on our estimated Q4 adjusted EBITDA," said Canaccord Genuity analyst Matt Bottomley.

"Revenue for the quarter was $5.7-million (ahead of our $5.4-million estimate) as the company produced stronger-than-anticipated yields on its harvest in excess of its previously estimated capacity. Adjusted EBITDA for the quarter of $2.8-million was well ahead of our $1-million estimate as a result of higher-than-anticipated sales, a lower-than-anticipated cost of production, and overall lower operating expenses. With its Part II expansion approved by Health Canada underway, we estimate that by the end of Q1 2018, Aphria will have a revenue run rate of more than $60-million and an annual capacity of about 9,000 kg," he said.

"In addition, management updated its funded capacity estimate to 100,000 kg, (up from 75,000 kg), and as a result, Aphria now trades at 8.7 times its funded capacity verses peers at 6.7 times. Although a premium to peers, we believe this is warranted based on solid execution to date, an industry-leading funded expansion plan, and as one of the lowest cost producers in the space. We would continue to remain buyers at these levels."

He maintained his "speculative buy" rating on the stock and raised his price target to $7 from $6.75. The consensus is $8.30.

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About the Author
Assistant Editor, Globe Investor

Gillian Livingston started her journalism career at The Gazette at Western University. She's worked for The Financial Post, Dow Jones Newswires and The Canadian Press as a reporter for news, business, markets and Ontario politics. More

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