Kinross downgraded after scrapping Ecuador project

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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.

Recent weakness that has turned up in Chinese economic data has prompted Dundee Securities analyst David Charles to downgrade Teck Resources Ltd. to a "neutral" rating from a "buy."

The downgrade comes as Mr. Charles lowered his outlook on metallurgical coal prices for the remainder of 2013 and 2014, an action he said was triggered by recent weakness in the spot price for coal and several reports that suggested economic growth is losing momentum in China.

The spot price is now trading 15 per cent lower than the most recent quarterly contract terms and he sees the risk they could soften further given indications the market is well supplied in the face of lacklustre Chinese demand.

"Until Chinese growth accelerates or met coal producers make further production curtailments, we see limited upside in the shares," Mr. Charles said in a research note. He points out that China represents about 25 per cent of Teck's sales.

Target: Mr. Charles cut his price target to $27 (Canadian) from $34. The average target among analysts is $35.37, according to Bloomberg data.

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Canaccord Genuity downgraded Kinross Gold Corp. because of the miner's decision to scrap its Fruta del Norte project in Ecuador after it failed to reach an agreement with the government over a windfall tax on revenues.

Kinross will take a $720-million charge for the project, pointed out analyst Steven Butler. "We previously ascribed an in-situ value for Fruta del Norte of $275-million."

"Kinross has also announced that it has pushed out the maturity dates on its debt: the $1.5-billion credit facility that was due on August 10, 2017 has been pushed out one year; the $1-billion term loan previously due August 10, 2015 has been pushed out two years. This should ease medium-term cash balance concerns at current spot commodity prices," he wrote in a research note.

Target: Mr. Butler cut his price target to $7.70 (U.S.) from $8 and his rating to "hold" from "buy." The average target is $7.93.

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UBS analyst Matt Murphy upgraded HudBay Minerals Inc. to "buy" from "neutral" after the company announced it is offering $150-million in new unsecured notes.

"This adds to the $500-million offering in September 2012 and will go some way to bridge the financing gap to complete the build-out of Constancia, Lalor and Reed (projects)," he said.

"Notwithstanding our falling copper price forecast and project delivery timing, HudBay offers strong net asset value accretion and EBITDA growth over the next two years with the ramp-up of Constancia, Lalor and Reed."

But Dundee Securities analyst David Charles pointed out that HudBay is still likely to cut its semi-annual dividends by 50 per cent in 2013 and 2014 until the new projects come fully onstream.

Target: Mr. Murphy cut his price target to $10.50 (U.S.) from $11.50. Mr. Charles reiterated a "buy" rating and $13 target. The average target is $12.

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Air Canada is a high-risk stock that still has significant upside potential thanks to initiatives that include new aircraft, its discount carrier Rouge, and cost-cutting plans, said Canaccord Genuity analyst David Tyerman.

He notes that Air Canada expects capacity growth of close to 10 per cent in 2014, based on considerably more international flying. This surprising growth "suggests significant market share gains for Air Canada from its new Boeing 777 and Rouge initiatives," he said.

"Our rough calculations suggest a very large upside potential. However, the estimates assume success on initiatives, some of which are quite uncertain (e.g., Rouge), and the upside from others could be offset by competitive actions. Accordingly, there is a high degree of risk to our forecast."

Target: Mr. Tyerman raised his price target to $5.50 (Canadian) from $5.25 and maintained a "buy" rating. The average target is $3.99.

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Catamaran Corp.'s "transformational" 10-year contract with Cigna Corp. to perform pharmacy benefits management services "provides tremendous scale and scope for Catamaran," said Cantor Fitzgerald Canada analyst Tom Liston.

"This new agreement almost triples the current HealthSpring/Bravo contract from an estimated $3-billion to between $8-billion and $8.5-billion expected in 2014. We believe it provides additional margin upside stating in mid-2015 as Catamaran migrates services to its platform," he said.

Target: Mr. Liston rates the stock "top pick" and raised his target to $70 from $65. CIBC World Markets analyst Stephanie Price also raised her price target to $65 from $62 while upgrading the stock to "sector outperformer" from "sector performer". UBS analyst Steven Valiquette upgraded the stock to "buy" from "neutral" and raised his price target to $68 (U.S.) from $59. The average target on the Street is $65.16.

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Several analysts have cut their price targets on Lululemon Athletica Inc. after the clothing retailer announced that Christine Day is quitting as chief executive officer. Michael Babad has more here in today's Morning Business Briefing.

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