Analysts rush to hike targets on CN Rail, CGI downgraded amid Obamacare mess

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Inside the Market's roundup of some of today's key analyst actions. This file will be updated during the trading day. For breaking analyst actions prior to market open every day, read our Before the Bell morning report.

Desjardins Securities analyst Benoit Poirier upgraded Canadian National Railway Ltd. to "buy" from "hold," commenting that the company's "stellar" third-quarter results have given him confidence that there will be further stock gains.

Mr. Poirier, and at least four other analysts, also raised their price targets on the railway.

CN Rail's adjusted earnings per share of $1.72 (Canadian) sailed past Street expectations for $1.62, and revenues also beat forecasts.

"In light of the strong quarter, including excellent operating metrics and market share gains, as well as the positive longer-term outlook, we believe there is additional potential upside to CN's share price at current levels," Mr. Poirier said in a research note.

"Overall, we are impressed with the company's ability to grow volume and improve operating metrics in the current economic environment. In our view, the market should take a more constructive view on CN in light of the company's notable growth opportunities and strong balance sheet," he added.

Raymond James analyst Steve Hansen was a little more cautious in his assessment, even while increasing his price target. "While we continue to view CN as a core, long-term holding backed by a solid growth prospects, we reiterate our market perform rating due to the stock's lofty current valuation," Mr. Hansen said.

Canaccord Genuity analyst David Tyerman echoed those thoughts in maintaining a "hold" rating: "CN is trading at a slight premium to its historic average on P/E and EV/EBITDAR bases and slightly above the sector and broader market valuations. None of this is dramatically out of line, but we think CN's current valuation limits the share price upside potential," he said.

Targets: Desjardins Securities raised its price target to $119 (Canadian) from $102. Raymond James raised its price target to $118 from $115. Canaccord Genuity raised its target to $109 from $105. RBC Dominion Securities raised its target to $123 from $120 and maintained an "outperform" rating. Credit Suisse raised its price target to $105 (U.S.) from $100.

The average price target, according to Bloomberg data, is $114.75 (Canadian).

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Citing concerns about the stock's increasingly high valuations - as well as the negative sentiment that could arise over an upcoming U.S. House hearing on the botched Obamacare website - Desjardins Securities downgraded CGI Group Inc. to "hold" from "buy."

Desjardins analyst Maher Yaghi made no change to his price target, but noted that the stock's healthy gains over the past year have left "shrinking potential upside for investors."

"Although our view is that CGI's fundamentals are solid, we note that share price appreciation has pushed valuations higher. The spread between CGI's valuation relative to peers has narrowed over the past few months. CGI is  currently trading at 8.4x next year EV/EBITDA. Relative to high-growth companies like Accenture (8.7x next year EV/EBITDA), spreads are nearing historical lows," he said in a research note.

Meanwhile, CGI's U.S. unit, CGI Federal, will testify Thursday at a House of Representatives hearing on the bug-filled implementation of the Patient Protection and Affordable Care Act website. So far, the Department of Health and Human Services has turned down the committee's invitation to participate in the hearing and will only answer the committee's questions next Wednesday.

"While we do not view CGI as the culprit behind the failure of the website, given that the company will be answering questions without the presence of CMS (content management system) representatives during the hearing, we expect the tone of the hearing to be accusatory and short on concrete reasons for the failure, which could increase the negative perception of the stock," Mr. Yaghi said.

Target: Mr. Yaghi maintained a $40 (Canadian) price target. The average target is $39.16.

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The expected sale of Maple Leaf Foods Inc.'s "prized asset," Canada Bread Co. Ltd., has prompted CIBC World Markets analyst Mark Petrie to upgrade the stock to "sector outperformer" and raise his price target.

Maple Leaf said on Monday it is considering selling its 90-per-cent stake in the bakery company, whose brands include Dempster's. The Globe and Mail reported the same day that private equity companies are interested in Canada Bread, which has a steady cash flow and dominant market share but sales that have flattened. The Globe also reported food companies from China, Brazil and the United States are interested in buying the main meat business, which is in the middle of a five-year restructuring.

Maple Leaf shares have risen by about 15 per cent since the news was reported.

Maple Leaf chief executive officer Michael McCain said the meat business is not for sale, and sources told the Globe any deal would wait about 18 months for the restructuring to be completed.

In August, Maple Leaf sold its profitable animal parts and biofuel division, Rothsay, to pay down debt. Mr. Petrie said in a research note he was surprised Canada Bread is now on the auction block and believes it sets the stage for the sale of the prepared meats business.

Mr. Petrie said the sale of Canada Bread could bring Maple Leaf $1.6-billion. With the $1.8-billion value of the meat business, he says Maple Leaf's implied share value is $20, with a $1 discount to reflect the risk a Canada Bread deal fails.

Target: Mr. Petrie raised his share price target to $19 from $14. The average share price outlook is $18, according to analysts surveyed by Bloomberg.

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Consumers' increasing appetite for organic food should double the category's market share in the next 10 years, lifting the outlook for retailer Whole Foods Market, said UBS analyst Jason DeRise.

The Texas-based operator of groceries should post compounded annual growth of 16 per cent over 5 years and 13 per cent over 10 years as shoppers' demand more naturally grown and organic foods, said Mr. DeRise.

Whole Foods share have risen by 41 per cent this year to about $64.

"We note [Whole Foods'] recent share price relative performance vs. traditional grocers has not kept up with its relative EPS outperformance. Closing this gap suggests 14 per cent upside," Mr. DeRise said in a research note.

Target: Mr. DeRise raised his share price target to $71 (U.S.) from $60 and maintained a rating of "buy." The average of analysts surveyed by Bloomberg is $62.67.

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Desjardins Securities analyst Keith Howlett raised his share price target for Jean Coutu Group Inc.

The Quebec-based pharmacy chain is buying back shares, which is expected to boost its earnings per share even as profits remain flat. Mr. Howlett's earnings per share estimates are unchanged for 2014 and 2015 at $1.04 and $1.16, respectively. The shares have risen by 26 per cent this year.

Target: Mr. Howlett raised the share price target to $18.50 from $17.60 and maintained a "hold" rating. The average of analysts surveyed by Bloomberg is $18.95.

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In other analyst actions today:

Industrial Alliance Securities downgraded Major Drilling Group International to "hold" from "buy" and maintained a $7.75 (Canadian) price target.

Salman Partners upgraded Celestica to "buy" from "hold" with a price target of $12.85 (U.S.). It was also upgraded by Paradigm, with a price target of $12.50.

RBC Dominion securities cut its price target on Brookfield Canada Office Properties to $30 (Canadian) from $33 and maintained a "sector perform" rating.

TD Securities initiated coverage on Potash Corp. with a "hold" rating and $32 (U.S.) price target.

M Partners downgraded Wajax to "hold" from "buy" and maintained a $39 price target.

UBS downgraded United Natural Foods to "neutral" from "buy" but raised its price target to $73 (U.S.) from $67.

Wedbush downgraded Broadcom to "neutral" from "outperform" and cut its price target to $27 (U.S.) from $33.

JPMorgan upgraded DuPont to "overweight" from "neutral" and raised its price target to $67 (U.S.) from $60.

Credit Suisse downgraded to "neutral" from "outperform" and cut its price target to $44 (U.S.) from $45.

BMO Nesbitt Burns raised its price target on Freeport-McMoran to $35 (U.S.) from $30 and maintained a "market perform" rating.

BMO Nesbitt Burns raised its price target on Methanex to $63 (U.S.) from $57.50 and maintained an "outperform" rating. Raymond James raised its target to $63 from $58.

Merrill Lynch initiated coverage on AOL with a "buy" rating and $47 (U.S.) price target.

BMO Nesbitt Burns cut its price target on Coach to $65 (U.S.) from $70 and maintained an "outperform" rating.

BMO Nesbitt Burns raised its price target on Kimberly-Clark to $105 (U.S.) from $96 and maintained a "market perform" rating.

BMO Nesbitt Burns raised its price target on Polaris to $155 (U.S.) from $140 and maintained an "outperform" rating.

RBC Dominion Securities raised its price target on Corning to $19 (U.S.) from $16 and maintained a "sector perform" rating.

Canaccord Genuity upgraded The Finish Line to "buy" from "hold" and raised its price target to $28 (U.S.) from $23.

Canaccord Genuity downgraded Matador Resources to "hold" from "buy" and maintained a $21 (U.S.) price target.

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