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A pedestrian walks past the SNC-Lavalin Group Inc., headquarters in Montreal, in this file photo

© Christinne Muschi / Reuters/REUTERS

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.

Genworth MI Canada Inc., the country's largest private mortgage insurer, should see a meaningful boost in its earnings and share price as a result of Canada Mortgage and Housing Corp. raising mortgage insurance premiums last week, said analysts today.

At least two analysts - from RBC Dominion Securities and CIBC World Markets - upgraded their ratings on Genworth to the equivalent of a buy rating. They suggest markets may be underestimating the long-term impact on Genworth.

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CMHC on Friday said it will raise premiums on policies that start May 1 by about 15 per cent on average. The move was quickly copied by rival mortgage insurer Genworth.

"We believe the market has not fully captured the economic significance of the rate increase," commented CIBC analyst Paul Holden as he upgraded his rating to "sector outperformer" from "sector performer" and raised his price target to $42 (Canadian) from $36.

He believes there's now a "very high likelihood" of Genworth boosting its dividend later this year. The company's payout already yields about 3.9 per cent.

RBC Dominion Securities analyst Geoffrey Kwan upgraded his rating to "outperform" from "sector perform" and raised his price target to $41 from $37.

Genworth's move to match CMHC's premium changes increases the analysts' financial forecasts. Mr. Kwan also believes that indications that the Canadian government wants to limit taxpayer exposure to mortgage insurance over time "should structurally benefit" the company.

Mr. Kwan noted it will take time, however, for the benefits of the premium hikes to filtered into Genworth's bottom line. "It is important to understand that while the impact to premiums written is immediate, the impact to metrics like EPS, ROE, BVPS is delayed (not material until likely 2016+), as premiums written are amortized into earnings over the life of the mortgage (about 75 per cent of a premium is recognized in the first 5 years)," he said.

"Our year/year growth forecasts increase to +12 per cent (was +5 per cent) in 2014 and +13 per cent (was +7 per cent in 2015). The impact is less in 2014 as the new pricing likely won't be experienced until Q3/14. Our 2015 premiums earned forecast increases by +2 per cent, with the percentage increase being higher for 2016+," he added.

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He thinks return on equity at Genworth will now eventually reach 13 per cent, up from 11.5 per cent in the fourth quarter of last year.

The analyst consensus price target for the company over the next year is $36.33, according to Thomson Reuters data.


Canaccord Genuity analyst Mark Rothschild downgraded Dundee Real Estate Investment Trust to "hold" from "buy" amid signs that the commercial real estate market in two key Canadian cities is softening because of an influx of new office space.

He also cut his price target to $30 (Canadian) from $31.25. "The lower target price reflects a relatively cautious outlook for the Canadian office market," Mr. Rothschild commented.

Specifically, he believes that new office developments in Toronto and Calgary will be a potential headwind for several years. There is currently about 5.1 million square feet of Class A office space under construction in downtown Toronto, or about 6.2 per cent of existing inventory. There's nearly 4.7 million square feet under construction in downtown Calgary, or about 12.1 per cent of existing inventory. Additional proposed projects could possibly add an additional 6.6 million square feet in downtown Toronto and 4.0 million square feet in downtown Calgary.

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"While a substantial amount of this development pipeline is pre-leased, there remains a significant amount of space that needs to be leased," Mr. Rothschild cautioned. "In addition, we expect the overall market vacancy rates to rise as space must be backfilled as some tenants enter new properties."

"Over the past few quarters, office fundamentals in both cities have softened, as tenants anticipate the new supply. While Dundee REIT has managed to maintain NOI (net operating income), we expect some weakness over the coming few years reflecting a more challenging leasing environment."

He also noted Dundee slowed its acquisition pace in the latter half of 2013, and this slower pace of external growth should continue going forward.

The average analyst price target is $33.54.


Dundee Securities analyst Frederic Blondeau downgraded Canadian Apartment Real Estate Investment Trust to "neutral" from "buy," citing slower growth prospects for net operating income.

Canadian Apartment REIT is the country's second largest owner of multi-residential buildings, with most of the assets in Ontario and Quebec. That won't work in the company's favour, Mr. Blondeau suggests, at a time when markets are growing the fastest in Western Canada.

"Despite CAR's relatively attractive valuation from an implied capitalization perspective and trading multiples, we currently favor an exposure to Western Canada's superior growth markets," Mr. Blondeau said.

Meanwhile, the bone-chilling weather will likely mean the REIT could be exposed to higher utility costs in the beginning of 2014 amid a surge in natural gas prices.

Mr. Blondeau cut his price target to $23 (Canadian) from $25.75. The average analyst target is $24.64.


SNC-Lavalin Group Inc. shares look good from a long-term perspective, but investors have little to gain in the short term, says Raymond James analyst Frederic Bastien.

Mr. Bastien believes that the pending sale of Altalink is already baked into the share price, which has appreciated 20 per cent and beat the TSX index by 9 per cent since SNC's board approved the sale process of the Alberta electricity generating company in September 2013. In addition, the consensus forecast of $1.60 earnings per share is optimistic, he says, and is likely to change when management introduces its 2014 outlook.

Mr. Bastien downgraded SNC-Lavalin to "market perform" from "outperform" and raised his target price to $52 from $50. The analyst consensus price target over the next year is $50.90.


This year has gotten off to a slow start for Major Drilling Group International Inc., with customers slow to make decisions and pricing remaining under pressure. But management has noted increased bid inquiries for its drilling services, especially from gold companies, noted Beacon Securities analyst Michael Mills.

Major Drilling's latest quarter was weak, with revenues declining 42 per cent and earnings per share about the lowest in four years. But the rise in the gold price of about 10 per cent since the start of 2014 has created reason for optimism given that the company primarily serves the mineral industry.

"The overall tone from management was more upbeat than we were expecting, instilling confidence that we have seen the worst of this bear market in drilling services," Mr. Mills said.

He upgraded his rating to a "hold" from a "sell" and raised his price target to $8.50 (Canadian) from $6.

"MDI is the most expensive drilling stock in our universe. It does not matter as investors have chosen to look well down the road to the earnings power this best-in-class name holds during better times," Mr. Mills commented.

The average price target is $7.89.


Raymond James initiated coverage on a handful of Canadian gold producers today, showing preference for Kinross Gold Corp. over both Barrick Gold Corp. and Goldcorp Inc.

Analyst Phil Russo began coverage on Barrick with a "market perform" rating and $18.50 (U.S.) price target. "As the bellwether name in the sector, investors gain exposure to Barrick's large production base, driven by a core group of assets that would rival any of its immediate peers. That said, equity holders with exposure to these assets and their cash flow generating abilities in low gold price conditions, will need to consider the offsetting weight of the company's albatross-like debt levels that, in our view, will constrain share price appreciation until brought to levels comparable with its more financially nimble peers. Despite efforts to rein in capital and operating cost spend, free cash flow is projected to be essentially elusive for Barrick over the next several years, while re-commencement of Pascua Lama will undoubtedly put further pressure on this metric," Mr. Russo said in a research note.

Goldcorp also got a "market perform" rating, with a price target of $27 (U.S.). "Historically a premium story, we believe Goldcorp offers shareholders numerous reasons to own the name with its unrivalled near-term production growth driven from a robust and geopolitically superior asset base. Combined with its solid financial position, Goldcorp's premium trading multiple has been warranted. However, at this juncture, we believe these attributes are reflected in the stock which, when considering the elevated capital spend remaining in 2014 (but concluding by year-end) and the backdrop of the recently announced hostile Osisko offer, suggest to us that investors should consider taking pause as the valuation is currently full, in our view," he commented.

He was more enthusiastic about Kinross, initiating coverage with an "outperform" rating and $6.50 (U.S.) price target. "Kinross has taken great strides in adapting its business profile to current market conditions, with significant capital spending reductions evident and consistent quarter-on-quarter operating performance seen over the past 3 years. As a result, we believe investor confidence towards the name is well on its way to being restored, particularly as the company is on the cusp of a period of peer-leading free cash flow levels. As its core operations maintain relative steady-state, Tasiast's ultimate future will continue to sit in the background as an updated study is due for release in 1Q14 (though a construction decision has been deferred to 2015). Absent Tasiast, Kinross' development portfolio does look conspicuously bare. While avoiding undertaking large-scale development projects in the current environment is a short-term boon to its investment case, we believe speculation will intensify as Kinross unavoidably will need to look to address this area of its portfolio over time," Mr. Russo said.


In other analyst actions:

RBC Dominion Securities downgraded Cobalt International Energy to "sector perform" from "outperform" and cut its price target to $22 (U.S.) from $24.

Industrial Alliance Securities upgraded Pason Systems to "buy" from "hold" and hiked its price target to $32 (Canadian) from $27.

Raymond James boosted its price target on Western Energy Services to $10 (Canadian) from $8.75 and maintained an "outperform" rating.

Dundee Securities downgraded WSP Global to "neutral" and kept a $36 (Canadian) price target.

Desjardins Securities cut its price target on Adriana Resources to 30 cents (Canadian) from 50 cents and maintained a "buy" rating.

Canaccord Genuity upgraded Nokia to "buy" and raised its price target to $10 (U.S.) from $8.

UBS downgraded MarkWest Energy to "neutral" from "buy" and cut its price target to $65 (U.S.) from $72.

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


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