Thursday's analyst upgrades and downgrades

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

Raymond James has rated the newly created Equinox Gold Corp. (EQX-X) following the merger of Trek Mining, NewCastle Gold and Anfield Gold.

"Equinox begins its life as a funded, multi-asset development company that is set to transition to a gold producer by the end of 2018. The addition of a high quality development asset (Castle Mountain) with optionality allows Equinox to escape the single asset discount trap that can sometimes impact companies that make the transition to production," said analyst Tara Hassan.

"We believe the merger has created a company with strong longer-term potential to become a mid-tier producer, but it is mildly dilutive to our pro-forma NAV valuation currently. We highlight the potential for this to change with delivery of positive results from exploration and the Castle Mountain Pre-Feasibility," the analyst said.

"One of the primary benefits of the merger was the securing of the full funding needed to build Equinox's Aurizona project in Brazil. Through a combination of cash from the 3 companies and a new $85-million (U.S.) project finance facility, the capital costs to develop the project are in hand and construction has commenced after the License to Install permit was received in mid-November, 2017. This puts the project on track for first production by the end of 2018E with Aurizona forecast to produce 120 koz Au at average AISC [all-in sustaining costs] of $830 (U.S.)/oz over a 10-year mine life (based on RJL estimates)," the analyst said.

Ms. Hassan rated the company "outperform" with a target price of $1.80, down from $2 previously.

"We reach our $1.80 target through application of a 1.0 times P/NAV [price to net asset value] multiple to our fully funded NAV 5 per cent for Aurizona, Castle Mountain and Koricancha and consider a $50-million (U.S.) exploration to reflect the potential beyond current resources at Aurizona and Castle Mountain and in Equinox's project portfolio."

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Credit Suisse is upgrading Domino's Pizza Inc. (DPZ-N) after the stock has pulled back "sharply" from recent highs, despite the possibility of "significant" upside to its future earnings around tax reform.

Credit Suisse also gave these reasons for the change: "2) With the relative P/E multiple now about 30-per-cent below the two year average we believe concerns around a fourth quarter sales miss and incremental delivery competition are priced in. 3) Our proprietary delivery survey suggests that the potential share shift towards third party delivery services may be more gradual than some investors fear. 4) DPZ is still one of the best growth stories in retail, driven by best-in-class franchise economics and +8 per cent  unit growth. 5) The upcoming investor day (Jan 10) could be a positive catalyst for investor sentiment. "

Credit Suisse upgraded Domino's to "outperform" from "neutral" and raised its target price to $220 (U.S.) from $205. The median price target is $215, according to Zack's Investment Research.

The new price target "implies about 28 times 2018E P/E. Risks: emerging competition in food delivery; potential reinvestment of tax savings; labour inflation. We revise 2017/18/19 EPS estimates to $5.77/$7.83/$9.01 (from $5.80/$6.85/$7.98 respectively)."

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BMO Capital Markets is upgrading F5 Networks (FFIV-Q) as the company "underperformed in 2017, and we believe the shares are ripe for a turnaround as more credit is given to the recurring nature of the software business," said analyst Tim Long.

"While the product refresh has disappointed thus far, we believe the spending cycle has reached an inflection point as customers finally begin to settle on their cloud architectures, while U.S. tax reform and continued share repurchases should further help the shares," he said.

He upgraded the stock to "outperform" from "market perform" and boosted his target price to $156 (U.S.), up from $122. The median target price is $122.

"Services have grown to become 54 per cent of total revenues, which is about twice the exposure of other data networking companies. This underscores the stickiness and longevity of FFIV's core ADC offering, and we believe the company should be getting more credit for its revenue visibility and predictability," he said.

"With a 31 per cent pro forma tax rate, F5 will be one of the biggest beneficiaries of tax reform within our coverage universe. We estimate the lower tax rate could add 10-15 per cent to our FY2018/FY2019 EPS estimates of $8.80/$9.44 and potentially enable the company to increase its already best-in-class capital returns," he said.

"At 15 times our CY2018 EPS estimate of $8.96 (before tax reform) and 11 times EV/FCF [enterprise value to free cash flow], we view the shares as undervalued. We are using a market multiple of around 17 times EPS, in line with the five-year average, to get to our new $156 price target, up from $122."

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CIBC has boosted its price target on BlackBerry Ltd. (BB-N) after it announced plans with Baidu "to collaborate to accelerate the deployment of connected and autonomous vehicle technology for auto OEMS and suppliers worldwide is a clear and positive data point."

"As further details emerge, we expect it to have a positive impact on BlackBerry's share price," said analyst Todd Coupland as he raised his price target to $15 (U.S.) from $13. He kept his "netural" rating. The median price target is $10.

"Recall our view was that material real-time QNX design wins are needed for a positive auto thesis. This Baidu announcement is a step in the right direction and supports our price target increase. Baidu selected QNX for its safety-certified production systems as these are top priorities for production-ready autonomous driving, intelligent connectivity and intelligent traffic systems. QNX's hypervisor also allows Baidu to consolidate vehicle systems to lower costs including ADAS, infotainment, gateways and cloud services," he said.

"Our BlackBerry thesis is based on the following three points: 1. Growth of 10 per cent to 15 per cent in F2018: BlackBerry has guided that F18 revenue growth is expected to come from enterprise security management. QNX and RADAR are not contributing to growth for now, but should starting in F2019. 2. The path to EPS of about  $0.40 requires faster growth: To achieve after-tax EPS of  about $0.40 at roughly current margins and OPEX, revenue would need to be about $1.2-billion (+30 per cent). 3. Our 2018 view of value is about $15 (prior $13), or 4.8 times revenue + cash per share of $3.18. The update is adding QNX to valuation. For QNX at a global market share of about 15 per cent, the value is about $2.40. Upside of about $10 per share would require global market share of 34 per cent," Mr. Coupland said.

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CIBC upgraded Summit Industrial Income Real Estate Investment Trust (SMU.UN-T) after it announced a joint-venture partnership with Urbacon to invest in data centre properties. " Summit will also have exclusive rights to participate in Urbacon's future data centre projects," said analyst Chris Couprie.

"We believe that this transaction will have long-term FFOPU [funds from operations per unit], NAVPU [net asset value per unit] and distribution implications. On stabilization, we think that the Richmond Hill asset alone could add an incremental $0.04-$0.05 to FFOPU over time. Incremental NAV creation could conservatively be in the $0.05 to $0.10 per unit range following additional investments to stabilize the asset. The Montreal asset, which is nearly two times the size of Richmond Hill could be even more accretive should the asset become leased and Summit convert its mezzanine loan into equity. The increased FFO contribution could set up distribution growth in the future. We believe there is scope for our NAVPU estimate to increase over time should the data centre assets achieve full occupancy," Mr. Couprie said.

"The transaction adds new high-quality properties to Summit's portfolio in a growing asset class. In addition, the relationship gives Summit access to a future pipeline of newbuild assets where it may have the opportunity to take part in the development profits," he said.

"Summit is trading at 11.5 times 2018E FFO and a 2 per cent premium to our $7.25 NAV estimate," he said.

As a result, he upgraded Summit to "outperformer" from "neutral" and boosted his price target to $7.75 from $7.50.

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