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Tuesday's analyst upgrades and downgrades

A man walks by a Rogers store in Toronto, Wednesday, August 15, 2013.

Galit Rodan/THE CANADIAN PRESS

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.

Canaccord Genuity analyst Dvai Ghose slapped a "sell" rating on Rogers Communications Inc., disappointed with the company's latest quarterly results that showed weakness across all its three main operating segments.

He also thinks Rogers is in danger of not meeting its 2014 profit and revenue guidance, and believes the stock has an unfavourable valuation next to peers.

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"Key negative surprises included 1) much worse-than-expected wireless subscriber loading; 2) the 4.9 per cent decline in postpaid ARPU (average revenue per user), in stark contrast to incumbent wireless peers; 3) very weak cable financials; and 4) disappointing media results," Mr. Ghose commented in a research note.

Rogers reported adjusted earnings per share of 66 cents, below the Street consensus and Mr. Ghose's prediction of 71 cents. Free cash flow was down 16.8 per cent.

Mr. Ghose notes that Rogers' wireless segment has a significant problem with "churn" -- customers leaving to sign up with other carriers. It lost a whopping 440,000 subscribers in the first quarter of 2014, he noted. That marks a continuation of a trend from last year, when Rogers Wireless lost 561,000 more customers than Telus Mobility and 392,000 more than Bell Mobility.

"We believe that Rogers must learn from peers like Telus when it comes to customer service," he said.

Meanwhile, Mr. Ghose said financials were very disappointing for Rogers Cable, and he suspects aggressive pricing is the culprit.

"While management attributed poor revenue performance in part because cable TV price hikes were only levied in Q2/14 versus in Q1/13, we wonder how much pricing power Rogers has in the TV and home phone segments, as these are no longer considered "must have" products by many consumers," he commented.

Overall for Rogers, "It is difficult to see significant improvements in the near- to medium-term as acknowledged by management and 2014 guidance may now be a stretch," he said.

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He also asks "why on earth is Rogers trading in-line to a premium to Telus and BCE on an enterprise value to EBITDA basis?"

He says wireless fundamentals are much better at Telus and Bell. "We would switch from RCI to TELUS or BCE. While some may see strong downside protection in RCI shares due to the current 4.1 per cent dividend yield, we note that BCE currently offers a 5.1 per cent dividend yield and we expect annual double-digit dividend growth at Telus over the next few years."

Mr. Ghose, who previously rated Rogers as a "hold," also cut his price target to $41 (Canadian) from $43. The analyst consensus price target for Rogers over the next year is $45.09, according to Thomson Reuters data.

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Goldman Sachs is warming up to gold and silver.

It raised its overall recommendation on the sector to "neutral" this morning while simultaneously upgrading its rating on Barrick Gold Corp. to "buy."

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Analyst Andrew Quail believes the sector's underperformance against the broader market over the past several months has made precious metals stocks more fairly valued.

He cited four main factors for his more bullish view: successful cost-cutting initiatives, more responsible capital allocations, a refocus on maximizing free cash flows, and "sound strategic portfolio optimizations."

Goldman Sachs is only predicting gold prices will average $1,200 (U.S.) an ounce from 2015 onwards, but Mr. Quail believes these four factors will help precious metals stocks' performance despite little upside forecast for the commodities.

For Barrick, Goldman Sachs applauded the company for focusing on its key free cash flow generating operations and divesting non-core assets. "Following the equity raise in 2013, we believe the company's financial flexibility has significantly improved," he said, via StreetInsider.com.

Mr. Quail, who previously rated Barrick as "neutral," also raised his price target on the stock to $23 (Canadian) from $18. That's above the analyst consensus price target of $20.25.

Goldman also initiated coverage on five other gold companies. B2Gold Corp. was given a "buy" rating and $4.20 (Canadian) price target; Alamos Gold Inc. a "neutral" rating and $10 (Canadian) target; Franco-Nevada a "neutral" rating and $52 (Canadian) target; Detour Gold a "neutral" rating and $9.50 (Canadian) target; and Buenaventura a "neutral" rating and $14 (U.S.) target.

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UBS analyst Colin Langan is initiating coverage on Magna International Inc. with a "neutral" rating, citing a limited sales growth outlook.

Mr. Langan says Magna's valuation discount to peers, based on enterprise value to earnings before interest, taxes, depreciation and amortization, has narrowed from about 39 per cent in 2009 to just 15 per cent today.

"Magna's current discount to other suppliers is appropriate, as its secular growth is more limited," he says.

He expects sales growth to be in-line with industry production of about 4 per cent.

Mr. Langan set a $101 (U.S.) price target. The analyst consensus price target over the next year is $106.40.

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Repeated execution missteps and cost over-runs at a facility in Brazil have earned MBAC Fertilizer Corp. a ratings downgrade from Raymond James analyst Steve Hansen.

"Notwithstanding MBAC's tangible progress toward reaching full production at its flagship Itafós facility, we have elected to downgrade our rating," said Mr. Hansen.

"In this context, while we continue to admire the company's long-term opportunities, we have elected to move to the sidelines until management definitively delivers on its Itafós production targets and financial/debt restructuring objectives."

Mr. Hansen lowered his rating to "market perform" from "outperform" and cut his target price to $1.05 (Canadian) from $3.00. The analyst consensus price target over the next year is $2.34, according to Thomson Reuters.

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The Street is underestimating the long-term monetization potential of upcoming new products at Facebook Inc., said Credit Suisse analyst Stephen Ju as he upgraded his rating on the stock to "outperform" from "neutral."

He also raised his price target to $87 (U.S.) from $65, which is well above the consensus price target of $74.06.

Mr. Ju's action followed a product-by-product "deep dive" into existing desktop and mobile products, as well as for upcoming Premium Video ad unit and Graph Search products.

"Facebook is on the cusp of a multi-year value creation cycle with the release of new products, including Premium Video, Graph Search, as well as Instagram advertising. We believe that these ad units can be layered on top of existing desktop and mobile ad formats without posing material risk to consumer engagement," he said in a research note.

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In other analyst actions:

Canaccord Genuity raised its price target on Genworth MI Canada to $38.50 (Canadian) from $35.50 and maintained a "hold" rating.

UBS raised its price target on Halliburton to $80 (U.S.) from $70 and maintained a "buy" rating.

Cantor Fitzgerald upgraded Netflix to "buy" from "hold" and raised its price target to $425 (U.S.) from $405. Raymond James also upgraded the stock to "outperform" from "market perform" with a price target of $450. FBR Capital raised its target to $393 from $356 and maintained a "market perform" rating. BMO Nesbitt Burns raised its target to $400 from $370 and maintained a "market perform" rating.

Credit Suisse upgraded Nasdaq OMX Group to "outperform" from "neutral" and hiked its price target to $42 (U.S.) from $40.

BMO Nesbitt Burns upgraded Home Depot to "outperform" from "market perform" with a price target of $90 (U.S.).

Credit Suisse downgraded Fidelity & Guaranty Life to "neutral" from "outperform" and hiked its price target to $24 (U.S.) from $22.

Raymond James upgraded Main Street Capital to "outperform" from "market perform" with a price target of $34 (U.S.).

Goldman Sachs upgraded Norwegian Cruise line Holdings to "buy" from "neutral" with a price target of $37 (U.S.).

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

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About the Author
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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