Exteriors of the Lululemon shop at 153 Cumberland St. in Toronto's Yorkville neighbourhood on Feb. 6, 2014.Fred Lum/The Globe and Mail
Inside the Market's roundup of some of today's key analyst actions. This file will be updated during the trading day.
Lululemon Athletica Inc. has seen an avalanche of analyst downgrades and price target cuts in the wake of the retailer cutting its financial guidance Thursday morning, bringing the average price target target on the Street tumbling by nearly $15 (U.S.).
Among the actions today: Canaccord Genuity downgraded Lululemon to "hold" from "buy" and slashed its price target to $42 (U.S.) from $69; JPMorgan downgraded its rating to "neutral" from "overweight" and cut its target to $42 from $56; and Baird cut its rating to "neutral" from "outperform" and lowered its price target to $44 from $60.
The actions today followed several other analysts significantly cutting their price targets on the stock Thursday after the company released its latest earnings and provided a disappointing outlook that sent its shares down by nearly 16 per cent.
The average price target on the Street is now $43.15 (U.S.), compared to $57.57 prior to this week's earnings.
Lululemon executives said sales at existing stores were slowing and the product offering was still "suboptimal," as the company continues to struggle to recover from a massive product recall last year.
"While we believe the brand is relevant and has robust long-term growth opportunities, the rate of increase in its seasonal vs. core product mix will take longer to benefit comps (comparable sales) than we previously expected," Canaccord Genuity analyst Camilo Lyon said in downgrading the stock. "Moreover, current 2014 guidance embeds an expectation of re-accelerating comps in the second half of 2014 that that seem aggressive."
"We fear the consumers' frustrations with the lack of fresh product will result in traffic declines that will be tough to reverse this year. LULU is a 'show me' story and while downside looks limited to the mid-30's, the needed catalyst of comp stabilization and reacceleration will not likely materialize for 9-12 months and thus keeps the stock range bound. As such, we are stepping to the sidelines until we see evidence that LULU's new fashion product is received well," Mr. Camilo added.
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Canaccord Genuity analyst David Tyerman has tempered his outlook on Transat A.T. Inc. by keeping a "buy" rating but cutting his price target to $17.25 (Canadian) from $19.25.
The travel tour operator has been affected by the decline in the Canadian dollar, though the company posted a slightly smaller loss than expected, said Mr. Tyerman.
"We have reduced our forecast to model a more gradual profit improvement for conservatism. But we think TRZ's outlook is positive. Fall 2015 has good improvement potential from cost cutting and fleet restructuring," he said.
Transat has been slowly clawing its way back into black ever since it announced its three-year plan to improve earnings back in 2011. The company suffered from excess competition at the turn of the decade, though it has since made considerable gains in narrowing its net loss.
The uncertainty of the company's future has also prompted CIBC World Markts analyst Kevin Chiang to slightly cut his target to $10 from $10.50 while maintaining a "sector perform" rating.
"We believe time is of the essence for TRZ.B (Transat) when executing on its strategy in order to fend off increasing competition, but its restructuring plan runs through to 2017, around when AC.B (Air Canada Inc.) and WJA (WestJet Airlines Ltd.) will have executed on their current growth plans. TRZ.B's long-term earnings visibility remains cloudy," he said.
The average target among analysts is $15.47, according to Thomson Reuters data.
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Despite concerns that growth may be slowing for Dollarama Inc., Desjardins Securities analyst Keith Howlett reiterated his "hold" rating and increased his target to $99 (Canadian) from $96.
The discount chain posted solid first-quarter fiscal year 2015 EPS (earnings per share) mainly stemmed from an extension on the estimated useful life of leased property improvements and warehouse equipment.
"While the business model is robust, same-store sales growth is slowing and the sales impact of higher priced items is moderating," he said, speaking to the slow increase of items priced above $1.
The last two quarters have also seen the slowest same-store sales growth in the last four years.
"While poor weather has definitely been a factor, we remain concerned that increased cannibalization from new Dollarama store openings, increased competition (e.g. Dollar Tree), and/or potential consumer fatigue with the multi-price-point concept, may also be factors," said Howlett.
The company also faces challenges with the weaker Canadian dollar and the rise in minimum wage in Ontario," Mr. Howlett noted, along with increased duties when China loses its most favoured nation status in 2015.
National Bank Financial today also raised its target to $103 from $99 and maintained an "outperform" rating.
The average target among analysts $101.57, according to Thomson Reuters data.
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Rising demand for aluminum has led BMO Nesbitt Burns analyst Tony Robson to upgrade Alcoa Inc. to "market perform" from "underperform" and raise his target price to $14 (U.S.) from $10.
One of the largest aluminum producers in the world, Alcoa has been battling falling aluminum prices due to an influx of Chinese supply. The company, along with a few other aluminum producers, have announced closures of several smelting operations, a move expected to be a positive catalyst for aluminum prices, says Mr. Robson.
"BMO Research's new forecasts for higher metal prices suggest continued underpinning for the shares, but not necessarily for the stock to move higher. Much will depend on whether Alcoa can turn bullish investor sentiment to hard EPS results for the upcoming quarterly earnings release," he says.
The company has also been focusing on diversifying into producing finished aluminum and non-aluminum products. Alcoa announced last month its intent to open a nickel-based jet engine plant that would cater to big jets.
The average target among analysts is $13.11, according to Thomson Reuters data.
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In other analyst actions:
UBS initiated coverage on Bank of Nova Scotia with a "neutral" rating and $76 (Canadian) price target.
UBS initiated coverage on Canadian Imperial Bank of Commerce with a "neutral" rating and a $105 (Canadian) price target.
UBS initiated coverage on Toronto-Dominion Bank with a "buy" rating and $61 (Canadian) price target.
UBS cut its price target on Barrick Gold to $18.50 (U.S.) from $21.75 and maintained a "neutral" rating.
Canaccord Genuity cut its price target on Transat AT to $17.25 (Canadian) from $19.25 and reiterated a "buy" rating.
BMO Nesbitt Burns initiated coverage on Sherritt International with an "outperform" rating and $6.50 (Canadian) price target.
Roth Capital upgraded Intel to "buy" from "neutral" and raised its price target to $35 (U.S.) from $28. Jefferies raised its target to $40 from $35 and reiterated a "buy" rating. Merrill Lynch boosted its target to $34 from $30 and reiterated a "buy" rating. RBC Dominion Securities raised its target to $31 from $28 and maintained a "sector perform" rating.
Wells Fargo downgraded Marathon Oil to "market perform" from "outperform" and revised its price target to $38-41 (U.S.) from $38-42.
Credit Suisse upgraded Pinnacle Foods to "outperform" from "neutral" with a price target of $36 (U.S.).
UBS raised its price target on Occidental Petroleum to $107 (U.S.) from $98 and maintained a "neutral" rating.
Darcy Keith