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A rig is set up at Precision Drilling yard in Nisku, Alberta, February 17, 2014.AMBER BRACKEN/The Globe and Mail

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

Cara Operations Ltd.'s (CARA-T) recent acquisitions have added to its growth platform, but near-term trends remain "challenged," according to Canaccord Genuity analyst Derek Dley.

Ahead of the release of its fourth-quarter 2016 financial results, scheduled for March 2, Mr. Dley downgraded his rating for Cara stock to "hold" from "buy."

"Cara announced the acquisition of St-Hubert on March 31, 2016, for $537-million, which successfully closed on Sept. 2, 2016," he said. "We believe the acquisition represents an attractive and synergistic expansion of its Quebec operations. Furthermore, we believe Cara will ultimately prove successful in expanding the St-Hubert retail platform across Cara's existing brands. Additionally, we view the acquisition of Original Joe's favourably, given the company's strong brands, and relatively inexpensive acquisition multiple, in our view.

"However, given our expectations that the challenging Alberta environment is likely to moderate same-store sales over the near term, particularly given the Original Joe's Western Canadian exposure, coupled with the seasonally weaker front half of the year performance from the food manufacturing business, we are cautious on Cara shares over the next couple quarters."

Mr. Dley is projecting quarterly earnings before interest, taxes, depreciation and amortization of $44-million, ahead of both the consensus estimate ($43-million) and the 2015 result ($29-million). He expects earnings per share of 42 cents, 6 cents above the consensus and an improvement of 9 cents year over year.

"We are forecasting same-store sales growth of negative 2.0 per cent, below the 2.5-4.0-per-cent same-store sales growth incorporated into management's long term 5-7 year financial targets, as we expect a slowdown in sales from Alberta-based restaurants," said Mr. Dley. "The company was relatively cautious with its near term same-stores sales guidance due to economic weakness in Western Canada, and as a result we have lowered our estimates.

"We believe that the Original Joe's acquisition has brought additional exposure to the soft economic environment of Western Canada, with Alberta in particular. Of the 99 restaurants acquired in Q4, 52% are established in Alberta, with an additional 32% established in British Columbia, Saskatchewan, and Manitoba. In the last three quarters, the previous owner of 82 of these restaurants, Diversified Royalties Corporation (DIV-T) disclosed [declines of] 5.9 per cent, 5.5 per cent, and 9.6 per cent in same-store sales growth in Q1, Q2, and Q3, respectively."

Mr. Dley lowered his target price for the stock to $29 from $34. The analyst consensus price target is $31.25, according to Thomson Reuters.

"In our view, Cara's offers a clear organic growth profile, healthy return on equity, and acquisition upside," he said. "However, given the challenging near term trends and seasonal weakness during the front half of the year, we recommend investors remain on the sidelines for the time being."

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Raymond James analyst Andrew Bradford feels the fourth-quarter results for Precision Drilling Corp. (PD-T, PDS-N) are better than what the market reaction implied.

After it released financial results on Thursday prior to the opening of markets, the Calgary-based company's stock rose a mere 0.83 per cent. That was followed by a 0.55-per-cent gain on Friday.

Saying its high quarterly rig count "reveals structurally lower costs across the board," Mr. Bradford raised his rating for the stock to "market perform" from "underperform."

Precision Drilling reported EBITDA of $65-million, however Mr. Bradford said he calculated a $77-million result with non-cash adjustments. He had been expected a $69-million result and the consensus projection was $77-million. He attributed the beat to lower per-day costs in both Canadian and U.S. drilling.

"We view these results quite favorably," he said.

Mr. Bradford said Precision has exhibited "fairly low sensitivity" to demand changes in Alberta's Deep Basin and Montney region. It has been more sensitivity to increased demand for heavy oil rigs.

"Just over half of PD's year-over-year rig count increase has been taken up in heavy-oil-oriented singles (26 active rigs today vs. 9 last year)," he said. "So while last year these singles would have represented about 16 per cent of PD active rig mix, today it's closer to 29 per cent. We suspect this could have a damping effect on PD's 1Q17 reported dayrate as singles are generally priced at rates below heavier doubles and high-spec triples. Based on PD's customer indications, PD's 2Q17 rig count could be more than twice as high year over year – consistent with our forecasting.

"High bid activity in several countries outside of North America, though slow to fruition. PD's two new Kuwaiti rigs both began working in 4Q16 – ahead of schedule, which earned PD a bonus reflected in 4Q16 results. PD has 4 idle rigs in the Middle East, and while its priority is to bid these rigs first, specifications may require redeployments from North America (1500-hp AC rigs) or even new-builds, the latter of which would likely imply capital outlays in 2018 primarily."

Based on the results, Mr. Bradford raised his 2017 and 2018 EBITDA estimates to $348-million and $571-million, respectively, from $314-million and $571-million.

He also raised his target price for the stock to $8.25 from $6.50. Consensus is $9.14.

"At 6.3 times our above-consensus 2018E EBITDA estimate, PD's multiple is above every non-downturn year's average since 2007," the analyst said. "Perhaps it's a function of the market's willingness to look further into the future as a guideline for value – perhaps as far as 2019. This looks awfully far away to us, but it does have merit based on the progression of dayrates widely anticipated through 2018. This progression means 2019 would more faithfully reflect annualized 2018 exit rate economics, and therefore the more traditional 6.5-times target multiple should be applied to this run-rate of EBITDA. Effectively, the market is saying that 2018 is also a recovery year – not a 'normal' run-rate year. If so, we'd expect the potential for even greater upside in PD as time progresses and a 2019 outlook becomes more solidified in investors' minds."

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Based on the uncertainty surrounding its $5.2-billion acquisition of a natural gas distribution unit from Petroleo Brasileiro SA, Credit Suisse analyst Andrew Kuske downgraded his rating for Brookfield Infrastructure Partners LP (BIP-NBIP.UN-T).

On Friday, a Brazilian federal judge granted an injunction against the sale of the pipeline unit, Nova Transportadora do Sudeste SA, based on concerns it fails to foster competition.

Moving his rating to "neutral" from "outperform," Mr. Kuske said: "This specific court issued injunctions in relation to other Petrobras divestitures and, at the least, looks to create near-term noise. Clearly, there will be legal wrangling ahead that will likely create timing uncertainty. With that backdrop and NTS underpinning part of our valuation and financials, we believe those factors and Brookfield Infrastructure Partners LP's stock performance (up 11 per cent year to date) necessitate a downgrade … We are operating in a bit of an information vacuum, but believe this action is appropriate based on the existing information and the limited return to our target price."

Mr. Kuske said he continues to have a "positive" view of the potential impact of NTS on Brookfield, but he called the delay "problematic" and "an outright termination would be more challenging."

"We continue to believe BIP's organic asset base growth underpins an attractive network story," he said. "That visibility should be regarded as a positive and enabling a significant high-grading of M&A opportunities."

He maintained a $40 (U.S.) target for the stock. Consensus is $38.84.

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Alterra Point Corp. (AXY-T) now provides investors with an "opportune" entry point, said Raymond James analyst David Quezada.

He set a rating of "outperform" for the stock after assuming coverage of the Vancouver-based company.

"With contracted revenues, still strong IRRs, and a sizable number of potential development opportunities we take a positive view of Alterra's strategy of focusing growth plans on the U.S. wind market," said Mr. Quezada. "However we highlight certain characteristics of Alterra's hydro and geothermal power assets that are very attractive. In the case of hydro and geothermal these benefits include very long asset lives, low operating costs and generally longer PPAs [power purchase agreements] and, in the case of geothermal, a non-intermittent, non-seasonal baseload type of generation profile.

"Accordingly, with a 75-per-cent contracted business with a weighted average PPA/power hedge life of 18 years and 64-per-cent capacity in long-life hydro/geothermal renewable technologies, we believe Alterra maintains among the most attractive existing asset bases within our coverage universe. While we do not believe relative multiple valuation (enterprise value/EBITDA) is necessarily the most appropriate valuation method for these long-life assets, we believe these attributes augur for a premium multiple when assessing the company relative to its peer group."

Mr. Quezada emphasized what he deems to be Alterra's "substantial" growth pipeline in the United States, as it is "one of only a handful" of Canadian independent power producers to develop a tax equity-financed wind project south of the border.

"We highlight Alterra boasts 1,200-1,700 megawatts of projects in its U.S. development pipeline sufficient to potentially triple net capacity," he said. "We believe this is reflective of the company's tax equity financing expertise as well as its recent success with the Shannon Wind project in Texas. Meanwhile, we note AXY's relatively small footprint versus peers coupled with the demonstrated ability to develop large scale renewable power projects provides for potentially numerous needle-moving catalysts going forward.

Mr. Quezada said he's projecting "robust" earnings growth over his forecast period driven by its recently commissioner projects and near-term developments. Kokomo solar project and Flat Top wind farm.

"These new projects drive a 15-per-cent 3-year CAGR [compound annual growth rate] in Alterra's net generation supporting our 2018 EBITDA forecast of $57-million, which represents a 16-per-cent EBITDA CAGR over 2015-2018," he said. "We expect a full year contribution from Flat Top, further wind projects in the U.S. and earnings upside at HS Orka will drive continued growth beyond our forecast horizon."

He added: "With a weighted average contract life of 18 years and long life hydro/geothermal generation representing 63-per-cent of the company's footprint we highlight Alterra as maintaining a very attractive fleet of power assets," he said. "The company also enjoys strong diversification both in terms of generation source and jurisdiction providing an offset for relatively greater financial leverage."

Mr. Quezada set a target price of $8 for the stock, up from the firm's previous target of $7.50. Consensus is $6.86.

"With shares of Alterra down [approximately] 27 per cent from August, 2016 highs (versus the TSX up 7 per cent) and trading below the recent $6/share equity issue we believe the stock represents good value at current levels," he said. "While we do not use EV/EBITDA for valuation, we note for comparative purposes AXY trades at 12.2 times 2018 estimated EV/EBITDA – a discount to comparable peers Innergex and Brookfield Renewable at an average of 13.2 times 2018 EV/EBITDA."

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Agrium Inc.'s (AGU-N, AGU-T) fundamentals are "slowly on the mend," said Raymond James analyst Steve Hansen.

Calling the company's fourth-quarter results, released on Thursday, "healthy," Mr. Hansen raised his target price for the stock to also account for "initial signs of spring optimism, and our broader view that global agriculture/NPK [nitrogen, phosphorus and potassium] fundamentals are slowly on the mend."

"Still, despite this incremental optimism, we continue to harbor concerns over the near-term impact of sizeable NPK capacity poised to come online in the coming months," he said. "Given this backdrop, and only modest upside to our revised target, we are comfortable reiterating our [market perform] rating."

Agrium reported adjusted earnings per share of 68 cents (U.S.), topping both Mr. Hansen's projection of 55 cents and the Street's expectation of 65 cents. He attributed the difference to stronger-than-expected crop protection volumes.

Following the company's post-release conference call, Mr. Hansen said Agrium's retail pipeline appears to remain "robust."

"While 2016 was acknowledged as a difficult y/y hurdle (76 locations, $500/$35-million of revenue/EBITDA acquired), management is targeting a 'similar' pace in 2017, suggesting to us that the breadth of its current M&A pipeline supports an ambitious goal," he said. "At the same time, they also noted 2017 will mark an important year for new-build locations, with [about] 10 expected for completion this year."

Based on the results, the analyst did lower his full-year fiscal 2017 and 2018 EPS projections to $5.05 and $6.25, respectively, from $5.30 and $6.75.

His target for the stock rose to $110 from $96. Consensus is $105.83.

Elsewhere, BMO Nesbitt Burns analyst Joel Jackson raised his target to $100 from $95 with a "market perform" rating (unchanged).

Mr. Jackson said: "We continue to expect AGU to trade sideways as the POT/AGU approval process plays out amid a lacklustre agriculture/ fertilizer dynamic."

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Raymond James analyst Frederic Bastien said FirstService Corp. (FSV-Q, FSV-T), his "best" pick, showed "well" in the fourth quarter of 2016.

"We believe FirstService remains superbly positioned to consolidate the large and highly fragmented market for property management and services across North America," said Mr. Bastien. "Amid strong prospects for growth and a lack of viable investment alternatives, we expect the stock to move higher still."

On Friday, the Toronto-based residential property services provider reported adjusted earnings before interest, taxes, depreciation and amortization of $31-million, ahead of Mr. Bastien's estimate of $29-million and the consensus of $27-million. Adjusted earnings per share of 41 cents also topped his estimate (32 cents) and the Street (31 cents).

Mr. Bastien said both of the company's divisions, FirstService Residential and FirstService Brands, contributed to the beat "with solid organic growth and cost efficiencies driving better-than-expected operating performance."

He said FirstService Brands is "firing on all cylinders," noting: " Revenues surged 64 per cent year over year to $107-million, with strategic and organic growth contributing 57 per cent and 7 per cent, respectively. The big surprise to us was profitability, however. We fully expected the acquisitions of Century Fire and certain California Closets and Paul David Restoration franchises to lower FSB's adjusted EBITDA margins to 14.3 per cent for the quarter, but they landed at a much healthier 15.1 per cent. Given our belief FirstService's sound companyowned strategy will continue to produce results, we are bumping our margin expectation for FSB to the tune of 50 basis points for both 2017 and 2018."

Mr. Bastien added the Residential division is "no ugly sister," adding: "The residential property management unit generated revenues of $274-million, up 9 per cent year-over-year and slightly better than our $272-million forecast. Organic growth of 5 per cent matched our target to a tee, leaving the revenue beat to the tuck-ins completed during the year. Momentum in the division's high-rise markets of Florida, New York, Dallas, Toronto and Vancouver easily compensated for slower growth in the more mature HOA regions of Nevada and Arizona. Importantly, Adjusted EBITDA margins of 6.3 per cent for the seasonally soft quarter came in 30 basis points stronger than projected thanks to continuing operating efficiencies across the FSR platform."

With an "outperform" rating (unchanged), his target price for the stock rose to $60 (U.S.) from $53. Consensus is $53.50.

"Our new target is based on an enterprise value-to-EBITDA multiple of 14.0 times our 2018 estimates (versus 13.0 times previously)," the analyst said. "This is within the high end of the stock's trading range of 11.5 times to 15.0 times since the split from Colliers, but warranted by FirstService's enviable and unrivaled position in North America's residential property management and services market."

Meanwhile, RBC Dominion Securities analyst Michael Smith raised his target for the U.S. issue of the stock to $58 (U.S.) from $56 with an "outperform" rating (unchanged).

"FirstService reported solid all-around results in Q4," said Mr. Smith. "Moving into 2017, we see the Brands division driving growth with continued tuck-under acquisitions and a healthy macro backdrop supporting organic growth. Consistent with Q3 guidance, the Residential division is set to produce lower, but nonetheless satisfactory, near-term organic growth, partially offset by higher margins and select acquisitions."

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Cameco Corp. (CCO-T) was raised to "buy" from "hold" by Cantor Fitzgerald analyst Rob Chang with a target of $16.90, up from $15.35. The analyst average target price is $15.77, according to Bloomberg.

"While the 2017 outlook included production guidance, average costs, and realized prices that were worse than our expectations, these were more than offset by lower than expected guidance on several other cost items," said Mr. Chang.

The stock was downgraded to "hold" from "buy" by Paradigm Capital analyst David Davidson, who lowered his target to $14.50 from $19.50.

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Gran Tierra Energy Inc. (GTE-T) was raised to "outperform" from "neutral" by CIBC World Markets analyst David Popowich with a $4.50 target (unchanged). The average is $5.56.

Mr. Popowich said: "Trading at the cheapest EV/DACF [enterprise value to debt-adjusted cash flow] valuation in our oil-weighted coverage universe, we believe the risk is increasingly skewed to the upside for Gran Tierra. The market will need to see execution on the operational front to push the stock higher, but we do not think one needs to see the valuation re-rate much to generate outperformance relative to other oil-weighted names we cover. However, we would point out that if any of Gran Tierra's various high-impact opportunities play out, there is plenty of room for a catch-up trade in this name. We see enough upside in Gran Tierra to justify a more bullish stance at this time, and are upgrading the stock."

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In other analyst actions:

Home Capital Group Inc. (HCG-T) was downgraded to "hold" from "buy" at Laurentian Bank by analyst Marc Charbin. His target fell to $28 from $35. The average is $29.73.

PharmaCan Capital Corp. (MJN-X) was rated new "buy" by Beacon Securities analyst Vahan Ajamian with a $3.50 target, which is also the analyst average.

Occidental Petroleum Corp. (OXY-N) was downgraded to "neutral" from "buy" at Mizuho Securities USA by analyst Timothy Rezvan. His target fell to $70 (U.S.) from $87. The average is $77.04.

Reynolds American Inc. (RAI-N) was downgraded to "sector perform" from "outperform" at RBC Dominion Securities by analyst Nik Modi. His target rose to $6 (U.S.) from $54. The average is $59.96.

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