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An RBC Financial Group sign in Toronto on July 10, 2017.Fred Lum/The Globe and Mail

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

Desjardins Securities analyst Benoit Poirier raised his financial projections for Canadian Pacific Railway Ltd. (CP-T, CP-N) following the release of largely in-line fourth-quarter results, expecting U.S. tax reform, a pension tailwind and land sales to boost 2018 earnings growth.

On Thursday, CP reported fully diluted earnings per share for the quarter of $3.22, exceeding Mr. Poirier's expectation by 3 cents and the Street's consensus by 2 cents. He called the rail company's operating ratio of 56.0 per cent, which also topped his forecast (56.7 per cent) and improved by 2 per cent from the previous year, "strong" despite facing headwinds from rising fuel costs and the Canadian dollar's appreciation.

"2018 guidance matched our forecast but missed consensus," said the analyst. "CP is targeting low-double-digit adjusted EPS growth versus $11.39 in 2017, matching our estimate but falling short of consensus (up 15.8 per cent year over year). This increase should be driven by (1) modest volume growth, and (2) a 1–2-per-cent year-over-year OR improvement, while assuming an exchange rate of $1.25–1.30, (3) pension tailwind, (4) lower tax rate, and (5) additional land sales. Capex should increase to $1.35–1.50-billion (we expected $1.34-billion) if CP goes ahead with additional investment in grain hopper cars."

CP's "strong" outlook for the first quarter, backed by "robust" fundamentals, set the stage for an "encouraging" 2018, said Mr. Poirier.

"Management expects strong RTM [revenue ton mile] growth in 1H18 with a potential slowdown in 2H18 as CP will be facing a tougher comparison," he said. "We currently forecast RTM growth of 4.7 per cent in 2018 (formerly 2.7 per cent), mostly in line with management's expectation. Moreover, we are encouraged by management's comments about 2018, which should benefit from (1) solid pricing momentum, (2) future realization of land sales of $50–60-million, (3) pension tailwind of $94-million, and (4) continuous improvement on the OR side."

He added: "Management expects U.S. tax reform to positively impact its effective tax rate by 150–200 basis points. Consequently, we are reducing our effective tax rate to 25.0 per cent (from 26.5 per cent initially), which translates into EPS growth of 1.5 per cent. CP also expects land sales of $50–60-million and a pension tailwind of $94-million to positively impact EPS growth by 1.9 per cent and 4.3 per cent, respectively, in 2018. Considering the combined impact of these three items (positive contribution of 7.7 per cent to 2018 adjusted diluted EPS growth), our view is that management's guidance is somewhat conservative and could be increased as the company receives additional visibility on volumes and costs."

Mr. Poirier raised his 2018 and 2019 EPS projections to $12.76 and $14.27, respectively, from $12.73 and $14.18.

He maintained a "buy" rating and target price of $254 for CP shares. The analyst average is currently $246.83, according to Thomson Reuters data.

"We continue to like the name and still have confidence that CP has the key ingredients to close the valuation gap vs peers (CP is the most attractive among Class 1s on a price-to-earnings basis)," he said. "We see further growth opportunities as well as cost-reduction initiatives that should translate into further OR improvement."

Elsewhere, Raymond James analyst Steve Hansen kept an "outperform" rating and target of $255.

Mr. Hansen said: "We continue to recommend CP shares based upon the firm's: 1) reinvigorated growth prospects; 2) impressive low-cost platform; 3) proven management team, and 4) attractive relative valuation — with the shares still trading at an unwarranted discount vs. its Class 1 peers."

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Canadian banks are enjoying momentum heading into 2018, said Credit Suisse analyst Nick Stogdill in a sector forecast report released Friday.

"Canadian Banks finished fiscal 2017 on strong footing and the group is well positioned to continue that momentum into 2018, driven by: (i) rising rates in both Canada and the U.S.; (ii) U.S. tax reform; and (iii) deployment of excess capital," he said. "Our updated forecasts imply 8-per-cent earnings growth and 9-per-cent total returns (12 per cent for O/P-rated banks, RY, TD and CM; 8 per cent for N-rated banks, BMO and BNS, and 3 per cent for UP-rated bank, NA)."

Mr. Stogdill sees growth in 2018 being driven by high-single digit growth in the Canadian banking and international segment and low double-digit growth in wealth segment. He predicts declines for wholesale banking in the wake of a "particularly strong" first half of 2017.

"For OP rated banks RY and TD, our growth forecast of 10 per cent in 2018 is above-average, with RY's growth driven by double-digit growth in Wealth, high-single digit growth in Canadian Banking and mid-single digit growth in Wholesale; similarly, TD's growth is driven by Canadian Retail and U.S. Retail," the analyst said. "CM's EPS growth of 4 per cent (our other OP rated bank) looks disproportionally low as a result of dilution from the PVTB acquisition.

"With valuations remaining near the long-term average of 12.5 times, we expect upside to be driven by earnings growth (versus multiple expansion)."

In the report, Mr. Stogdill updated his price targets for the sector's stocks. His changes were:

Royal Bank of Canada (RY-T, "outperform") to $114 from $108. Consensus: $109.13.

Analyst: "RY has: (1) A well-diversified business that continues to generate above-average EPS growth which also translates to above-average dividend growth (10 per cent in 2017 versus 7-per-cent peer average); (2) Leading platforms in Canada (Retail Banking, Wealth and Capital Markets) that have scale, enabling RY to both reinvest in its franchises and better manage through a slower growth environment, should that unfold. RY is the only bank to take restructuring charges within core earnings providing a modest tailwind for 2018; and (3) Upside to a stronger U.S. economy (rates, regulatory & tax reform) through its U.S. Wealth and Capital Markets platforms. Lastly, we believe RY is well positioned on a relative basis on NAFTA with earnings downside partly mitigated by translation benefits of U.S. earnings with a weaker Canadian dollar."

Toronto-Dominion Bank (TD-T, "outperform") to $79 from $77. Consensus: $78.13.

Analyst: "We remain positive on TD and believe above-average EPS and dividend growth will be supported by (1) Strong performance in Canadian Retail reflecting improving operating leverage (particularly in H1/18) and margin benefits from mix shift (continued growth in HELOCs) and rising rates in its strong deposit franchise; (2) 10-per-cent growth in U.S. Retail reflecting benefits of rising rates and the Scottrade acquisition with potential for more upside from tax reform. In addition to the favourable growth outlook, TD stands to benefit the most from changes to capital floors putting them in a relatively stronger position to deploy capital. TD is also well positioned on a relative basis on NAFTA given its U.S. earnings exposure."

Canadian Imperial Bank of Commerce (CM-T, "outperform") to $134 from $125. Consensus: $129.07.

Analyst: "We believe the more favourable outlook for CM's Canadian and U.S. Banking businesses along with its strengthening capital position warrant a higher relative valuation and an Outperform rating."

Bank of Nova Scotia (BNS-T, "neutral") to $86 from $84. Consensus: $89.86.

Analyst: "Valuation has become more attractive relative to historical levels on both a short and long-term basis but we continue to believe our Neutral rating is warranted. Earnings growth in International could be impacted by margin pressure driven by rate cuts and growth in lower yielding commercial loans as well as rising PCLs under IFRS9. Furthermore, NAFTA negotiations pose additional risks for earnings growth in Mexico in the near-term. In Canada, earnings may lag peers in 2018 given the strong performance delivered in 2017 (benefits of efficiency gains, branch sales and accelerating mortgage growth."

Bank of Montreal (BMO-T, "neutral") to $107 from $103. Consensus: $106.07.

Analyst: "We remain Neutral on BMO until there are signs of stronger growth in its Canadian and U.S. Banking businesses which have been trailing peers. Although the bank stands to benefit from U.S. tax reform and a potentially stronger economy, our bias is to TD for U.S. exposure (however, BMO is well positioned on NAFTA risks). BMO has the strongest capital position of the Big-6 banks but we believe this is priced in to its above-average valuation (BMO's valuation is in-line with its historical average excluding excess capital)."

National Bank of Canada (NA-T, "underperform") to $64 from $61. Consensus: $66.50.

Analyst: "A delivered strong growth in 2017 and we believe it will be more challenging for the bank to deliver similar performance in 2018, particularly in terms of efficiency gains. Relative valuation remains above-average and our lower total return for the bank is warranted based on our implied cost of equity analysis which also shows less fundamental improvements in its business vs. peers over the long-term."

Canadian Western Bank (CWB-T, "neutral") to $40 from $37. Consensus: $39.64.

Analyst: "In our view, a Neutral rating is still warranted for CWB: (1) the economic outlook for Western Canada is improving but the lending environment remains challenging; (2) non-relationship based Alt-A mortgages have been a key driver of growth; and (3) the stock is expensive at 1.5 times price-to-book relative to a sub-12-per-cent ROE [return on equity] and we believe deployment of excess capital is needed to justify this valuation."

Laurentian Bank of Canada (LB-T, "underperform") to $55 from $57. Consensus: $58.20.

Analyst: "While valuation has come down since Q4/17 earnings, we continue to see limited upside to LB given its weak underlying growth outlook and believe recent issues related to mortgage underwriting and quality control measures will negatively impact mortgage lending and increase expenses."

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The start of 2018 brings a "favourable" outlook for gold equities, according to Canaccord Genuity analysts Tony Lesiak and Rahul Paul, emphasizing "improving" momentum as well as typical positive seasonality in the first two months of the year.

"Despite the modest recent gains, gold sector valuations remain near historical lows with the sector largely forgotten by the generalist and overshadowed by the cannabis/crypto craze, in many ways reminiscent of the dotcom bubble days (comparison in this report) which begs the question whether it is time to convert one's cannabis and crypto holdings into gold," the analysts said in a research report on the precious metals sector released Friday. "While some respite may be in store for the weakening dollar, which has been driving bullion (DXY short covering and upturn in U.S. growth), we continue to expect strong inflation-driven tailwinds later in 2018. According to CG Strategist, Martin Roberge, Phase II of the gold rally should begin in Q4/18 and given current sector valuations, especially on a relative basis, it may be prudent to start accumulating gold shares.

"For the equities, the trend has been positive with balance sheets largely repaired, management alignment improved, more conservative guidance (most seniors hit their numbers in 2017) and with some producers (YRI, K, BTO) on the verge of unrecognized strong FCF growth (discussed in this report). We see profitable growth from BTO and AEM followed by YRI and IMG … Current themes include sector consolidation for relevance, geopolitical risk aversion and heightened safety premiums, and declining acceptable (risk adjusted) returns given asset scarcity which is driving an increased focus on exploration. In this report we also discuss changes to the U.S. Tax Act and new IFRS accounting rules that may provide medium-term tax relief for U.S.-focused miners and may cause increased earnings volatility for the royalty companies."

Ahead of the start of fourth-quarter earnings season, Mr. Lesiak and Mr. Paul updated their forward price assumptions to account for the recent 5-per-cent rise in gold, 10-per-cent jump in copper and 3-per-cent increase in zinc.

With those changes, the analysts made numerous target price alterations to stocks in their coverage universe, including:

Franco-Nevada Corp. (FNV-T, "buy" rating) to $125 from $121. Consensus: $110.74.

Osisko Gold Royalties Ltd. (OR-T, "buy") to $22.50 from $22. Consensus: $19.37.

Royal Gold Inc. (RGLD-Q, "hold") to $101 (U.S.) from $99. Consensus: $94.32.

Barrick Gold Corp. (ABX-T, "buy") to $27 from $24.50. Consensus: $19.67.

Agnico Eagle Mines Ltd. (AEM-T, "buy") to $81 from $77. Consensus: $71.09.

Alamos Gold Inc. (AGI-T, "buy") to $13.50 from $13. Consensus: $11.62.

Asanko Gold Inc. (AKG-T, "hold") to $1.20 from $1. Consensus: $1.24.

Argonaut Gold Inc. (AR-T, buy") to $5 from $4.25. Consensus: $3.99.

B2Gold Inc. (BTO-T, "buy") to $6.50 from $6. Consensus: $5.32.

Centerra Gold Inc. (CG-T, "hold") to $7 from $8.50. Consensus: $9.34.

Detour Gold Corp. (DGC-T, "buy") to $23.50 from $22.50. Consensus: $20.77.

Endeavour Mining Corp. (EDV-T, "buy") to $39 from $37. Consensus: $32.23.

Goldcorp Inc. (G-T, "hold") to $21.50 from $21. Consensus: $22.98.

IAMGOLD Corp. (IMG-T, "buy") to $10.50 from $9. Consensus: $9.40.

Kinross Gold Corp. (K-T, "buy") to $10.50 from $9.25. Consensus: $6.86.

Klondex Mines Ltd. (KDX-T, "buy") to $4.25 from $4.50. Consensus: $4.47.

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Chinook Energy Inc.'s (CKE-T) "volatile" production profile adds uncertainty going forward, said Industrial Alliance Securities analyst Michael Charlton.

Following an operational update that failed to meet his expectations, Mr. Charlton downgraded the Calgary-based company to "hold" from "buy."

On Wednesday, Chinook said fourth-quarter production is now expected to come in at 3,750 barrels of oil equivalent per day, citing the impact of the weather, ongoing outages and third-party restrictions. It had just three of 13 wells online to end the year, producing 3,572 boe/d, below its revised guidance of 6,300-6,500 boe/d.

"Weather and pipeline outages dealt a blow to production as the company was forced to make the majority of its production offline," said Mr. Charlton. "The good news here is that with the on-time commissioning of the Birley compressor, Chinook will finally have the capacity to produce all of its wells when they come online. Due to uncertainty of production and volatility of Station 2 pricing, Chinook is postponing the finalizations of its 2018 capital program at this time."

The analyst dropped his target for its stock to 20 cents from 50 cents. The average is 31 cents.

"Trading at a discount to our estimated NAV, we believe Chinook holds multiple potential opportunities for future development," he said. "Furthermore, we believe the company is open for any M&A opportunities that may increase shareholder value as well as reduced ongoing operating costs during the rather soft natural gas commodity price cycle it faces in NE BC with the limited egress option it is presently experiencing."

Elsewhere, GMP Securities analyst Robert Fitzmartyn cut his target 25 cents from 30 cents with a "hold" rating (unchanged).

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CES Energy Solutions Corp. (CEU-T) will see little impact from a lower 2018 and 2019 Canadian rig count, according to Raymond James analyst Andrew Bradford.

"While we do see marginal risk in the 4Q17 consensus EBITDA figure; frankly, our conviction here is low by virtue of the small spread between our estimate and the consensus," he said. "We're looking for $38-million EBITDA while the consensus is at $42-million. We are further below the 1Q18 consensus figure at $43-million versus $51-million. This 1Q disparity isn't specific to CES, but rather it is a function of our expectation for an earlier 'economic' spring breakup, in which the natural seasonal impact of thawing ground is amplified by a greater need for producers to preserve cash flow.

"[Its] new products at different points in the pipeline. Some time ago, CES adapted its MMH drilling fluid system for drilling under roadways and riverbeds for pipeline crossings, with substantial time savings relative to the standard practice. Recall that MMH fluids increase in viscosity when not being agitated and then liquefy as fluid pumps are re-engaged. This feature lends much greater hole stability and, hence, reduced time. CES now has several crossing projects underway. Further down the pipeline, CES is continuing to advance its fracturing chemistry to improve on the standard for fracturing with briny produced water. We still don't expect a commercial product will be available until early 2019 (this isn't a change from previous expectations)."

Mr. Bradford lowered his 2018 earnings before interest, taxes, depreciation and amortization (EBIDA) projection by $1-million to $188-million, while his 2019 expectation rose to $223-million from $218-million.

He kept a "strong buy" rating and $8.5 target on CES shares. The average target is $9.04.

"We continue to rate CES Strong Buy based on its free cash flow generation and management's history of generating higher-than-average returns on capital," said Mr. Bradford.

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Acumen Capital analyst Brian Pow views Cargojet Inc.'s (CJT-T) new scheduled international flights as a "positive," leading him to raised his target for the Mississauga-based airline's stock.

On Thursday, Cargojet announced it will begin operating twice per week between Hamilton and Bogota, Colombia and Lima, Peru as well between Hamilton and Cologne, Germany.

The flights fill the void left by the expiration of an agreement with Air Canada Cargo.

"CJT's exclusive ACMI [aircraft, complete crew, maintenance, and insurance] agreement with Air Canada (AC-T) expired at the end of 2017," said Mr. Pow. "Gross revenues from the contract were small ($9-million per year) and margins were set relatively low to make inroads into the business. The termination was disclosed with the Q3/17 results in November 2017.

"Through discussions with Management and further investigation, we have concluded that the main reason the ACMI agreement expired is that the Air Canada pilots union was against non-Air Canada pilots operating Air Canada Cargo registered flights. The decision was not driven by CJT's performance."

Maintaining a "buy" rating for the stock, Mr. Pow raised his target to $65 from $60. The average is $60.25.

"We see potential for CJT to use this strategy to expand its non-core business going forward. Catalysts for the story in 2018 include (1) CJT winning the FedEx contract (operated by Morningstar until 2019) if it comes up for renewal, (2) a dividend increase (CJT increased its dividend by 17 per cent in August 2016 and 10 per cent in March 2017), and (3) growth driven by the core and noncore business," he said.

Elsewhere, Echelon Wealth Partners analyst Ralph Garcea hiked his target to $70 from $62 with a "buy" rating (unchanged).

"We believe CJT deserves a premium to its comparables average due to its dominance in the Canadian overnight air cargo market, and potential growth catalysts from its international routes," said Mr. Garcea.

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In other analyst actions:

National Bank Financial analyst Rupert Merer upgraded Lithium Americas Corp. (LAC-T) to "outperform" from "sector perform" with a target price of $12.50 (unchanged). The average on the Street is $13.13.

PPG Industries Inc. (PPG-N) was cut to "neutral" from "overweight" by JPMorgan Jeff Zekauskas, who has a target of $120 (U.S.). The average is $124.52.

Believing U.S. sports goods sales should start to accelerate in the second quarter, Wedbush Securities analyst Christopher Svezia raised his rating for Nike Inc. (NKE-N) to "outperform" from "neutral" and raised his target to $71 (U.S.) from $68. The average is $66.

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