Analysts hike targets on National Bank as rally continues

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

Analysts are rushing to hike their price targets on National Bank of Canada after the company reported a record profit Wednesday that easily beat Street expectations.

Higher capital market trading and wealth management fees helped National Bank post profit of $419-million or $2.39 a share for the three months ended July 31, up 12 per cent from a year earlier. The lender's shares rose $1.89 to $81.14 on Wednesday, their biggest one-day gain since July 2012. Shares are up a further $1.45, or 1.8 per cent, in midday trading today.

"We rate National Bank's shares as outperform as we believe that the stock's valuation overly discounts the challenging elements to the National Bank and does not reflect the positives," commented RBC Dominion Securities analyst Andre-Philippe Hardy. He raised his price target to $93 from $86.

Less enthused was CIBC World Markets analyst Robert Sedran, who reiterated a "sector underperformer" rating even while raising his price target to $85 from $82. "Overall, the good outweighed the bad even though we are disinclined to assign full credit for very strong trading in our estimates and given seven consecutive declines in the net interest margin," he said.

BMO Nesbitt Burns analyst John Reucassel raised his target to $86 from $83 and reiterated a "market perform" rating. "Despite good Q3/13 results, roughly 40-45 per cent of earnings are derived from wholesale banking, and concerns on limitations from a more onerous leverage ratio test limit valuation improvement potential," he said.

Desjardins Securities analyst Michael Goldberg raised his target to $93.50 from $91.50.

Target: The median target among analysts is $82, according to Thomson First Call.

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Canadian Western Bank's higher exposure to commercial lending and to Western Canada should support better earnings growth relative to peers in 2014 and 2015 and margin pressures should moderate, said RBC Dominion Securities analyst Andre-Philippe Hardy.

He reiterated an "outperform" rating after the bank reported better-than-expected third-quarter earnings.

"We expect loan growth to be a key differentiator for Canadian Western Bank as loan and revenue growth becomes more difficult to come by for the industry," Mr. Hardy said. "We are forecasting loan growth of 11 per cent and 9 per cent in 2014 and 2015, respectively, which compares to 14 per cent growth in 2012, and expected organic loan growth in the mid-single digits for peers."

Target: Mr. Hardy raised his price target to $34 from $32. The median Street target is $31.

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CIBC World Markets analyst Paul Lechem upgraded Capital Power Corp. to "sector outperformer" from "sector performer" given an improved earnings and lower risk outlook after it agreed to sell its three New England gas-fired facilities to Emera Inc. for $541-million (U.S.).

The price-tag was 19 per cent below what Capital Power paid for the underperforming facilities in 2011.

"The sale provides several benefits: (1) removes unprofitable facilities, (2) allows for wind-down of commodity and energy trading activities outside Alberta, with further savings, (3) provides cash to fund Shepard Energy Centre, (4) helps increase contracted mix from about 40 per cent to 65 per cent," he said.

Target: Mr. Lechem raised his price target to $24.50 from $24. The median target is $24.

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Emera Inc.'s purchase of three gas-fired plants from Capital Power will add long-term value to shareholders, but it is likely dilutive in the near term as it requires equity financing, said BMO Nesbitt Burns analyst Ben Pham.

He considers the deal a "modest negative" and reiterated a "market perform" rating on Emera shares.

Target: Mr. Pham cut his price target to $33 from $36.50. The median target is $35.50.

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UBS analyst Jason DeRise downgraded Fresh Market Inc. to "neutral" from "buy," citing the grocer's guidance that suggests better earnings growth will have to wait for about a half a year.

The stock has outperformed the broader market by 33 per cent since its fourth-quarter results on March 6, as the Street may have underappreciated the cycical nature of the company's gourmet grocery sales.

"But, its new guidance suggests another six months until the better EPS growth kicks in, which differed from our expectations," he said.

Target: Mr. DeRise maintained a $56 (U.S.) price target. The median target is $56.60.

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Other analyst actions today include:

Raymond James cut its price target on Joy Global Inc. to $53.75 (U.S.) from $58.50. Jefferies also cut its target to $47 from $60.

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For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities