Inside the Market's roundup of some of today's key analyst actions
After Thursday's announcement that it would be buying Calgary's Unconventional Gas Resources for $229.6-million in shares and the assumption of $47-million in debt, Painted Pony Petroleum Ltd. (PPY-T) was downgraded to a "hold" rating by Desjardins Capital Markets, from "buy."
Desjardins analysts Jamie Kubik and Chris Bacivan lowered their target price to $7.50 (Canadian) from $9 as they revised their cash flow estimates for 2018 with respect to the acquisition.
The analyst consensus target is $10.78, according to Thomson Reuters data.
The acquisition, plus $100-million in concurrent financing, "improves the company's financial flexibility and brings logical operating synergies," they wrote. "Qualitatively, the deal provides PPY with access to additional infrastructure and liquids potential at Jedney and Beg. Quantitatively, however, the amount of stock issued drives near-term dilution to our estimates. While we like the long-term aspects of the acquisition, we are reducing our rating and target in conjunction with the near-term dilution."
Calling it a "strategic acquisition," Desjardins said Painted Pony "remains an attractive player in our view." Regardless, "we expect the stock could continue to trade sideways with the level of equity issued and the dilution to near-term metrics."
Analysts at Raymond James Ltd. called Cervus Equipment Corp.'s (CERV-T) Thursday below-expectation results "another minor infraction," dropping its rating from "outperform" to "market perform."
Ben Cherniavsky and Edward Gudewill lowered their target price to $13.25 (Canadian) to $16. Analyst consensus over the next year is $16.28.
"The quarter was plagued by a number of surprises that we feel could have been telegraphed better, and which cause us to question how advanced the company's turnaround efforts are," they said. "Furthermore, while end market demand appears to have bottomed, there is no evidence that significant revenue growth is poised to resume this year."
The agricultural, transportation, construction and industrial equipment company, Canada's largest owner of John Deere agricultural equipment franchises, reported an adjusted fourth-quarter earnings per share of $0.02, versus Raymond James's $0.43 estimate. Its $272-million revenue was ahead of the analysts' forecast, up 6 per cent year-over-year, thanks in part to delays that shoved more sales into the fourth quarter.
Cervus's consolidated gross margin fell below Raymond James's forecast, however, and inventories had fallen $63-million year-over-year. "We still believe there is room for improvement. Refinancing risk of the July- 2017 debenture has been reduced given the approximate $70 mln cash inflow from the sale of land and equity interest in Maple Farms, which should reduce interest costs."
Lower commodity prices and higher Canadian-dollar equipment costs, they said, "will continue to present a challenging environment for Cervus. It is for these reasons, as well as our concerns over the company's leverage and inventory levels, that we remain on the sidelines."
Exa Corp. (EXA-Q), a digital-simulation-software firm that helps vehicle engineers design more efficient products, has perplexed Canaccord Genuity analysts enough to drive them to downgrade their rating on the company to "hold" Friday.
"We really wrestled with what to do with our rating on Exa," wrote David Hynes Jr., Richard Davis and Mark Belcarz. "On the one hand, any short-term buying pause that is caused by the uncertainties of a prospective border tax or the roll-back of emissions standards should in theory be temporary. If simulation consumption patterns are in fact as steady as management suggests, then the near-term purchasing shortfall will be rectified by mid-year upgrades, and all will be good."
That, in theory, would support a continued "buy" rating. But there's more. "We get the sense that management has pretty limited visibility into customers' budget allocations and plans. Given the rapid reversal in tone from an upbeat analyst day only 90 days ago, this team now likely has a perceived credibility issue – warranted or not – which will take time to disprove."
As the company's projected fiscal-year growth for 2018 is now expected to be in the single digits, delaying plans for boost margins, "we're not sure what would compel incremental investors to buy EXA shares here. Thus, in our view, the prudent move is to step to the sidelines for now."
Canaccord lowered its Exa price target to $15 (U.S.), from $18, which remains the analyst consensus price.
Calling Adobe Systems Inc. (ADBE-Q) a "media marketing money machine," RBC Capital Markets raised its price target for the document-management and marketing company to $135 (U.S.), from $130.
"We view a combination [of] a growing recurring base, latent operating leverage and pricing power as powerful levers for continued compounding of earnings and cash flows," wrote analysts Ross MacMillan, Yaoxian Chew, Matthew Hedberg and Robert Simmons.
Its annualized recurring revenue for the first half of 2017 is trending at about $90-million above their estimates, which they wrote should compound through year's end and into 2018. "Opex growth should continues to largely track headcount in the teens. We'd also note the shrinking share count and remarkably clean balance sheet."
The analyst consensus price for Adobe is $126.61.
"Our price target of $135 is based on 25x our FY18E EPS at the end of FY17," RBC's analysts wrote. "This is above the historical 22x NTM P/E, reflecting higher growth (+30% Y/Y for EPS) and the higher percentage of recurring revenue in the model (>90% by FY18)."
In other analyst actions, Barclays raised its rating to "equal weight" from "underweight" on Empire Co Ltd.