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RBC downgrades HP, admits it was wrong in predicting turnaround

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

RBC Dominion Securities analyst Amit Daryanani is conceding he was too optimistic about Hewlett-Packard Co.'s chances for a successful turnaround. He downgraded the computer maker to "sector perform" from "outperform" today in the aftermath of the company reporting a $8.8-billion (U.S.) writedown Tuesday related to its botched acquisition of Autonomy Corp.

For its fiscal year ended Oct. 31, HP reported a whopping $12-billion loss, which includes another writedown as well, compared with profit of $7-billion a year ago. Revenue fell to $120-billion from $127.2-billion a year ago.

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"While we are late to the ratings change, our basic initial assumption that revenues will stabilize and turnaround would take shape, enabling free cash flow and earnings per share growth, is proving to be incorrect," Mr. Daryanani said in a note.

He believes HP's "impaired" balance sheet will make it tougher for the company to invest in areas of growth, and sluggish demand for PCs will continue to act as a headwind.

Downside: Mr. Daryanani cut his price target by $4 to $14 (U.S.)

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Whitecap Resources Inc.'s decision to offer a dividend is sustainable "and still allows potential to outperform expectations," said Raymond James analyst Luc Mageau.

The company is expected to yield 6.8 per cent and grow production per share by 5 per cent, year-over-year, Mr. Mageau wrote in a research note. The dividend is expected to be $0.60 annually.

Upside: He rates the stock "strong buy" and raised his target price to $12 from $11.50.

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Political uncertainty in the northeast of the Democratic Republic of the Congo could have negative consequences for Banro Corp.'s Twangiza mine, warns CIBC World Markets analyst Cosmos Chiu.

The rebel group M23 has reportedly seized control of parts of the city of Goma, the capital of the North Kivu province. Those same rebels may now be taking aim at Bukavu, the capital of South Kivu, where the Twangiza mine is located.

Mr. Chiu's key concern is mine supplies, as Bukavu lies along a key transportation route. "This is certainly not an ideal time for any kind of supply interruption given the teething issues at Twangiza. We believe this could impact Twangiza's ability to reduce costs," he said.

Downside: Mr. Chiu downgraded Banro to "sector perform" from "sector outperform" and lowered his price target to $4.75 from $6.

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SunOpta Inc. faces volatile margins in its frozen fruit, sunflower seeds, juice and fruit bars businesses, said Desjardins Securities analyst Keith Howlett.

The company has benefited from lowering indirect expenses, improved commodity grain volumes and prices, and higher volumes and better pricing of packaged beverages, he said. But volumes of healthy fruit snacks declined in the third quarter, while production and raw material prices increased.

"SunOpta management continues to streamline the company's business mix and to lower the company's cost structure. Progress with respect to the longer term objective of increasing the value-added activities of the company appears to be slower going," Mr. Howlett wrote in a research note.

Downside: Mr. Howlett cut his rating on the stock to "hold" from "buy" and kept his target price unchanged at $6.50 (U.S.).

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General Moly Inc. has received a "record of decision" from the U.S. Bureau of Land Management, a big step in allowing its Mt. Hope molybdenum project in Nevada to proceed. While the project still requires two state permits, CIBC World Markets analyst Matthew Gibson notes these are expected by year-end and all project financing plans should be in place in the first half of next year.

"The receipt of the record of decision significantly de-risks the Mt. Hope project and should provide investors with more confidence and clarity regarding the development timeline for the project," Mr. Gibson said.

Upside: Mr. Gibson raised his price target to $4.50 (U.S.) from $4.20 and maintained a "sector performer" rating.

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

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Investment Editor

Darcy Keith is The Globe and Mail's Investment Editor. He has been a business journalist since 1992 and joined the Report on Business in 2010 from Yahoo! Canada, where he was the senior editor of finance. More

Deputy head of Audience

Sonali Verma is deputy head of audience at the Globe and Mail. She is a business journalist with more than 20 years of experience, mainly in digital media.She was previously the Globe and Mail’s senior editor in charge of audience engagement, overseeing its homepages as well as social media operations. More

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