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Wednesday's analyst upgrades and downgrades

BlackBerry was a Canadian darling and one of the few Canadian companies with global appeal and following.

Mark Blinch/Reuters

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

The Street reacted positively to Wednesday's news BlackBerry Ltd. (BB-T, BBRY-Q) has been awarded $814.9-million in a binding interim arbitration decision in a dispute with Qualcomm Inc. over royalty overpayments.

The Waterloo, Ont.-based tech company was upgraded by a pair of equity analysts, while several others raised their target price for its stock.

Scotia Capital's Paul Steep raised his recommendation to "sector outperform" from "sector perform" with a target price of $13.27, up from $10.71.

"We anticipate that if Blackberry is successful in achieving a final arbitration award from Qualcomm (approximately $815-million) then the firm will be extremely well positioned to undertake further M&A to accelerate its software-first strategy," he said. "Our expectation is that Blackberry's capital deployment priorities would rank as: (1) M&A to accelerate software revenue growth; (2) share repurchases; and (3) selected repurchases of its convertible debentures. We believe that Blackberry's focus will be primarily on deployed capital towards M&A in key business lines with longer-term growth opportunities (e.g. Internet of Things, security and secure communications.

"We expect BlackBerry's results to remain volatile over F2018 as certain aspects of the business remain unclear: (1) revenue ramp from IP and device licensing, (2) normalized operating cost structure, and (3) additional metrics to evaluate the performance of the software business."

Elsewhere, CIBC World Markets analyst Todd Coupland upgraded it to "neutral" from "underperform" with a target of $13.27, rising from $10.64.

Analysts making target price changes included: Macquarie's Gus Papageorgiu to $14 from $12 with an "outperform" rating and Canaccord Genuity's T. Michael Walkley to $12.61 from $10.71 with a "hold" rating.

The consensus target is $10.89, according to Bloomberg.

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Lululemon Athletica Inc. (LULU-Q) presents "opportunity for long-term investors" following a recent reset in price, said Stifel analyst Jim Duffy.

He upgraded the stock to "buy" from "hold."

"We see both 12 months risk-reward (3 to 1 to the upside) and longer-term risk –reward as favourable with an upside case based on achievement of 2020 objectives pointing potential for shares to more than double in two years," the analyst said.

He kept his with a $60 (U.S.) target. The average is $60.85.


CIBC World Markets analyst Robert Bek raised his target price for shares of Rogers Communications Inc. (RCI.B-T) after hiking his valuation of the Toronto Blue Jays.

"Our Rogers NAV [net asset value] valuation relies in part on estimates from third parties," he said. "In particular, we use Forbes annual Major League Baseball valuations to account for Rogers' ownership of the Toronto Blue Jays and the Rogers Centre. According to the latest estimates from Forbes, the Jays (and Rogers Centre) are now estimated to be worth $1.3-billion (U.S.), up 44 per cent from the $900-million that we had been carrying the asset at (which was based on Forbes 2016 estimate).

"Updating the value of the Jays in our NAV to align with Forbes latest estimates, and translating the amount back to C$ terms (using a rate of $1 USD = $1.36 CAD in accordance with estimates from CIBC's economics team) adds $1 to our price target, which goes up to $62 (from $61)."

He maintained a "neutral" rating for the stock, noting it is "solely due to our view on valuation as shares continue to trade near peak multiples."

The analyst consensus price target is $57.71, according to Thomson Reuters.

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Colliers International Group Inc.'s (CIGI-Q, CIGI-T) goal of doubling its size by 2020 remains "well within reach," according to Raymond James analyst Frederic Bastien.

In 2015, the Toronto-based commercial real estate services company established its global strategic plan, which it called "Enterprise Plan 2020," with a priority on doubling within five years. Mr. Bastien said Colliers' ability to accomplish that objective was a "key message" at its annual general meeting in Toronto on Tuesday.

"And to those who justifiably question the longevity of today's [commercial real estate] cycle, We say Colliers stands to equally profit from periods of economic uncertainty or bouts of market volatility," he said. "For proof consider that the company gained control of the Colliers brand in 2010 just as the economy was emerging from the Great Recession, rescued Colliers UK from the brink of insolvency in 2012 and then acquired Colliers Germany in 2013 when the Eurozone was under severe pressure. This moxie to act when others are running for cover, in our opinion, will continue to serve management and shareholders well."

In a research note ahead of the release of its quarterly results, scheduled for May 2, Mr. Bastien also emphasized Colliers' "M&A momentum continues unabated; strikes in the U.S. Midwest."

"Last week the firm strengthened its presence in Minnesota with the acquisition of a controlling stake in the Welsh Companies (a Colliers affiliate since 2010)," he said. "Welsh offers lease brokerage, investment sales, property and facilities management, architecture services and project management across the greater Minneapolis-St. Paul area. Its more than 240 professionals generate approximately $50-million in revenues annually and EBITDA margins in the high single-digit range. Transactions make up about two thirds of Welsh's volumes, with outsourcing and advisory services contributing the balance. We understand the purchase price was near the high-end of the 4–6.5-times EBITDA range we have come to expect of Colliers, reflecting the healthy margins and strategic nature of the transaction. Importantly the Welsh deal, combined with the acquisition of the Colliers Denmark in January, already puts the firm within close proximity of the $90-million in acquired revenue we target for all of 2017 (ex-Parrish)."

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Mr. Bastien is projecting a 25-per-cent rise in the company's quarter earnings before interest, taxes, depreciation and amortization (EBITDA) year over year to $28-million in its seasonally weakest quarter. That estimate is $4-million above the consensus estimate.

"Our expectations are for strong performances from both Americas and EMEA regions and a more muted (but still positive) contribution from Asia Pacific," he said.

He has an "outperform" rating and $57 (U.S.) target price for the stock. The analyst consensus price target is $51.29.

"We remain attracted to Colliers International for its proven roll-up model, best-in-class management team and enterprising culture," he said. "Not only do we expect a robust U.S. economy to sustain elevated levels of commercial real estate transactions domestically in 2017, we also see the firm's global outsourcing and advisory business coming into its own and fuelling positive organic growth for Colliers."


Crius Energy Trust (KWH.UN-T) is "undeniably undervalued with multiple upside opportunities," said Desjardins Securities analyst Bill Cabel.

"In light of investor interest in yield thus far in 2017 (our IPP coverage and the utilities are up 10 per cent and 8 per cent year-to-date, respectively, and Crius is outperforming both sectors, up 24 per cent), we are revisiting our Buy thesis on the name and looking at its valuation compared with its peer group," said Mr. Cabel. "Crius trades at a very attractive relative valuation, offers investors a stable distribution yield (7.5 per cent) and a solid 2 per cent per quarter dividend increase supported by the base retail energy business."

Mr. Cabel said the Toronto-based trust's base retail energy business "supports" its "attractive and growing" distribution policy, providing "solid" growth.

"We have a positive outlook for this business (solid organic adds, moderating attrition, improved cost profile), which we expect should grow EBITDA by a conservative 9-per-cent CAGR [compound annual growth rate] over the next two years," he said. "This growth supports its 2-per-cent quarterly distribution increase without impacting its payout ratio."

He has a "buy" rating and $13.50 target for the stock. Consensus is $12.40.

"We compare Crius with peers Spark Energy (SPKE-Q, not rated) and Just Energy (JE-T, not rated)," the analyst said. "We believe Crius screens well in most categories and better than peers in some. Our $13.50 target implies [approximately] 5.6 times 2018 enterprise value-to-EBITDA, a significant discount versus SPKE and JE, which trade at 6.3 times and 7.2 times, respectively."

"We believe continued solid growth from all segments, including an improvement in the solar business, potential upside from strategic partnerships and M&A, should drive strong value creation for investors. Solid growth combined with an attractive yield gives us conviction in our Buy rating."


BMO Nesbitt Burns analyst Joel Tiss increased his financial expectations for Caterpillar Inc. (CAT-N)  based on "visible improvements unfolding" throughout the company's end markets.

"Caterpillar is the only company we follow with a share price that remains below prior peak levels (near $117 in 2012), marking a period of significant relative underperformance," he said. "Our sense is that many investors are beginning to see the positive narrative for the first time in years and conclude that the company is setting up to exceed expectations and raise guidance for the remainder of 2017. However, we believe these hopes may be overly bullish following a recent bottoming of retail sales and revenue trends. The overwhelming presumption that 1H17 results will beat Street consensus may be too hasty, especially given the overhang of Caterpillar's legal uncertainties.

"It appears that a large number of long-only investors may be precluded from being significantly overweight the name because of fiduciary responsibilities. Thus, the shares are likely being hindered by Caterpillar's legal woes, which seem serious enough to keep larger institutional investors on the sidelines pending a resolution. However, with a possible $2 billion-plus government settlement over tax-related and other issues, we believe management may look to restrain near-term profitability through replenishing several expense buckets."

Mr. Tiss's 2017, 2018 and 2019 earnings per share projections moved to $3.25 (U.S.), $4.45 and $5.25 from $3.00, $4.00 and $5.15, respectively.

"After comparing Caterpillar's year-over-year 10-K filings, we believe the company will selectively fortify certain categories with excess quarterly profitability first to ensure a more-durable recovery while not doing a victory lap and highlighting better results in the face of its ongoing government investigation. Examples of management's flexibility are short-term-incentive compensation and contributions to its pension and OPEB plans," he said. "By funneling excess operating profits into either of these two categories, Caterpillar can bide time to see if recent recovery trends are actually durable while possibly postponing beats and raises until September of this year when new CEO Jim Umpleby is scheduled to address investors."

Mr. Tiss added: "We believe that for Caterpillar's stock to potentially double over the next five to seven years, EPS will need to grow by 3.5–4.5 times toward $12–15 from 2016's adjusted EPS of $3.42," the analyst said. "However, based on our analysis, we struggle to see where that robust end market improvement will come from."

With a "market perform" rating (unchanged), his target rose to $105 (U.S.) from $100. Consensus is $92.81.


Calling it a public-private partnership (P3) "powerhouse," Raymond James analyst Frederic Bastien reaffirmed his "outperform" recommendation for Bird Construction Inc. (BDT-T) following meetings with the company's chief executive officer Ian Boyd and chief financial officer Wayne Gingrich.

He said the meetings reaffirmed his belief that the Mississauga-based company is taking the necessary steps to position itself for "long-term profitable growth."

"Call us cynics but over time we have grown increasingly skeptical of governments' ability to get promised infrastructure stimulus packages out the door," said Mr. Bastien. "The good news is that Bird prefers to pursue projects within Canada's public-private partnership (P3) market, which remains healthy. After a slow year of tenders in 2016, a number of P3 opportunities dating well before Justin Trudeau's time as Prime Minister are coming to market in 2017. For the contractor this means about a dozen design-build projects combining for over $2-billion in value. We would be remiss to expect as high a win rate for Bird as in 2015, when the company went 8 for 9, but its early successes on the Royal Columbian Hospital redevelopment and Hamilton Biosolids project point to a very strong year."

Mr. Bastien also expressed optimism about Bird's prospects for future P3 work going forward, noting: "That's because management pays more attention to who it teams up with than ever before, targets only work that fits squarely within Bird's wheelhouse and now invests equity in projects (so that every partner puts its best foot forward). Although this targeted approach does not guarantee success, we believe it helps ensure that each element of a Bird P3 bid — be it the design, construction, facility management or financing—is a point of strength and potential difference maker. It was the combined strength of Bird and Kiewit's balance sheets, for example, that won the joint venture the GO Transit East Rail Maintenance Facility two years ago. What's more, Bird secured the Saskatchewan school bundles on the back of similar project awards in Alberta; the Stanton Hospital thanks to a better mouse trap, and the Moncton entertainment center because it knew the market better than anybody else. Do we care about what exactly tips the balance in favour of the contractor's next P3 bid? Not really—as long as it does."

Mr. Bastien noted recent pricing pressures have been "slowly subsiding" based on a "thinning" of the competition. He pointed to the departure of several European companies "that came to Canada in search of greener pastures 7–8 years ago have notably retrenched following bad experiences with the model."

"As a case in point, Bouygues and Carillion both exited the design-build box in favour of less risky facilities management (FM) services," he said. "U.S.-based Walsh Construction remains pretty active in Ontario, but that may very well change with construction activity accelerating south of the border. We know it only takes one desperate bidder to mess up what could have otherwise been a fantastic opportunity for others. But the fewer of those around, the better the odds of this irrationality not prevailing, all else equal."

The analyst has an "outperform" rating for the stock and $11 target. Consensus is $10.50.


In other analyst actions:

Capstone Mining Corp. (CS-T) was raised to "buy" from "hold" by TD Securities analyst Craig Hutchison, who maintained a target price of $1.90. The analyst average target price is $1.68, according to Bloomberg.

Harte Gold Corp. (HRT-T) was rated a new "Buy" at Haywood Securities by equity analyst Pierre Vaillancourt. The 12-month target price is C$1.00 per share.

Interfor Corp. (IFP-T) was raised to "buy" from "hold" at TD Securities by analyst Sean Steuart. He raised his target to $23 from $19, compared to the average of $20.71.

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About the Author
Globe Investor Content Editor

David Leeder is a content editor in the Report on Business. He was previously Deputy Sports Editor and Weekend Digital Editor at The Globe.  He holds an undergraduate degree from McMaster University and a graduate degree from Ryerson University. More


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