Friday’s analyst upgrades and downgrades

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Inside the Market's roundup of some of today's key analyst actions Canadian Imperial Bank of Commerce (CM-T) needs to keep pushing into the United States if it hopes to improve its valuation versus other large Canadian banks.

Canaccord Genuity Corp. analyst Scott Chan tweaked his target on CIBC to $116 from $117 reflecting a higher tax rate for its newly acquire U.S.-based PrivateBank and maintained his "buy" rating.

The stock closed at $105.57 Thursday.

His target price is 10.7 times his fiscal 2018 earnings estimate of $10.84 per share, which is a nine per cent discount to the target multiple average of 11.75 times that he applies to valuing Canada's other large banks.

"We feel CM's narrowing of its wide valuation gap versus peers will take time, but our 14 per cent total return assumption keeps us positive on CM stock," the analyst wrote in a research note.

He estimates that the U.S. will account for eight per cent of earnings in fiscal 2018. "Management's long term strategy is to growth their U.S. earnings to represent 25 per cent of earnings through additional acquisitions down South. This would be the largest driver of narrowing CM's significant valuation gap versis peers."

Meantime, investors have their dividends to look forward to.

"CM's dividend increase (2.4 per cent) represents an industry–high dividend yield of 4.9 per cent," the analyst wrote. "We believe this is an attractive proposition for investors to await as better growth metrics materialize medium term."

Elsewhere, RBC Capital Markets analyst Darko Mihelic also left his rating and target price unchanged.

"CM delivered good third-quarter 2017 results on better credit; however, we have left our price target of $119 and Sector Perform recommendation unchanged," the RBC analyst wrote in a research note. "Valuation for the stock is interesting; however, we believe CM's valuation discount will likely remain given uncertainty on capital and relatively higher exposure to slower growth in Canada."

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Canaccord Genuity Corp. analysts Jenny Ma raised her target on Cominar REIT (CUF.UN-T) to $14.25 from $13 and kept her "hold" rating on more details about the real estate investment trust's plans to sell off assets outside of Quebec.

Management said it will group properties outside Quebec into six to eight portfolios and that the sale process will take about 24 months.

"With healthy real estate market fundamentals in most markets outside of Alberta, we expect there to be healthy investor demand for Cominar's assets in the Greater Toronto Area and Atlantic Canada, a view that is consistent with management's expectations," she wrote in a research note. "Not surprisingly, the Western Canada portfolio is expected to be the toughest to sell, and the REIT's new target leverage of 48 per cent (more later) is therefore predicated on completing $1.0-billion of the estimated $1.2-billion in asset sales."

Management plans to pay down debt, buy back units and add properties in core markets. The analyst believes the new target leverage of 48 per cent is achievable over the next two years. Leverage was 53 per cent as of June 30, the analyst said.

"We believe this announcement of a plan for asset sales and a strategy to focus on its legacy core markets is a step forward and the messaging was clearly welcomed by the market with the REIT's units up 7 per cent this week," the analyst said. "While this announcement is one of the first signs of a meaningful strategy to stabilize the REIT's operational and financial positioning, we expect Cominar to continue to trade at a discount valuation until there is meaningful progression in the execution of the plan."

The units closed Thursday at $13.46. Including an 8.5 per cent yield, the analyst's target provides a 14 per cent total return.

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Six analysts have a hold rating on business manufacturer New Flyer Industries Inc. (NFI-T), but not the latest analyst.

BMO Capital Markets analyst Jonathan Lamers initiated coverage on New Flyer with a "market perform" rating and a target of $57.

"We find the stock's valuation captures much of the potential upside from further cost synergy opportunities and we are concerned there are under-appreciated risks to end market demand beyond 2017," the analyst wrote in a research note. "With the stock at the high end of its historical valuation ranges, we recommend existing investors hold and new investors monitor for a more compelling entry point."

The analyst believes that demand for montor coach buses has plateaued after six years of double-digital percentage growth, and that public transit bus will slow within the next few years.

"We would be more constructive in the range of about $46 or lower (all else being equal), reflecting a valuation at the mid-point of the stock's historical range (8.6x forward Enterprise value/earnings before interest tax depreciation and amortization), which we consider more appropriate given industry deliveries are at historically high levels."

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CIBC World Markets Inc. analyst Hamir Patel likes his top pick, Norbord Inc. (OSB-T), even better this morning.

The analyst increased his earnings before interest tax depreciation and amortization estimates for 2018 to $612-million (U.S.) from $583-million, and to $630-million for 2019 from $521-million, which he said is much higher than consensus estimates.

"We are raising our price target to $53 (Canadian) (from $50) on higher estimates," the analyst wrote in a research note. "While North American oriented strand board prices have likely peaked this cycle, we see earnings only peaking in 2020 when the company should still benefit from robust pricing levels while seeing full contributions from the Inverness expansion and Huguley mill re-start, as well as the likely re-start that year of Chambord."

The stocks closed at $41.60 on the TSX Thursday.

Despite North American OSB margins in the 40 per cent range currently, the analyst has detected no signs of any new green fields under consideration. "We have also recently confirmed with Egger (#3 European OSB producer) that their planned $700-million (U.S.) investment in a "wood-based materials plant" in North Carolina does not include any OSB. At the same time, none of the major B.C. lumber companies (who all have strong balance sheets) have shown any interest in coming into OSB despite its superior supply/demand fundamentals."