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Wednesday’s analyst upgrades and downgrades

A Broadcom chip.

HO/Reuters

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

One way to invest in iPhones without investing in Apple Inc. is to invest in Broadcom Ltd. (AVGO-Q), maker of semiconductors.

"Broadcom reports earnings Thursday after the market close and we anticipate strong results and guidance in part due to our smartphone survey work indicating solid near-term sales with strong pent-up consumer demand for iPhone products," said Canaccord Genuity Group Inc. analyst Michael Walkley in a research note. "We expect Broadcom to issue strong October quarter guidance reflecting 40 per cent content growth in the new iPhone platform with eight products up from five products in iPhone 7. As a result, we believe our October quarter and fiscal 2018 estimates could prove conservative given our increasing confidence Apple is ramping the new iPhone 8 products for the holiday season."

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He increased his price target to $300 (U.S.) from $272 and kept his "buy" rating, adding that he expects free cash flow margins to approach management's target of 35 per cent and that there to be room for a "meaningful" increase to the dividend. The stock closed at $255.19 Tuesday.

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Canaccord Genuity analyst Kevin Wright initiated coverage of Acasta Enterprises Inc. (AEF-T) with a "buy" rating and a $7 (Canadian) target.

Acasta was the first special purpose acquisition company (SPAC) to complete an acquisition, and has bought Apollo Health and Beauty Care, JemPak Corp. (private labelling), Stellwagen Group (aviation finance) and ECN Capital's commercial aviation business. The company also intends to enter private equity.

The stock hit a new low Tuesday, closing at $5.45 and is down more than 45 per cent this year.

"We view price pressure as related to the SPAC structure as well as underwhelming business performance," Mr. Wright said in a research note. "We believe selling the stock while retaining the warrant has had a negative impact but selling was likely also related to the company delivering results below expectations set in the prospectus; Acasta recently withdrew its 2017 guidance."

Mr. Wright believes the businesses purchased are stable and he is optimistic that the company can raise its first private equity fund sometime in 2018 or 2019.

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"In our view, Acasta has been slow out of the gate. Stellwagen only recently received its $100-million (U.S.) investment from Acasta, significant synergies have not yet been realized at Apollo and JemPak and the billion-dollar raise targeted for early 2017 has not been completed," he said. "Nonetheless, we believe these are delays, not failings, and significant equity held by the sellers of Apollo, JemPak and Stellwagen should give comfort in the medium-term outlook."

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BMO Capital Markets analysts Heather Kirk likes Cominar REIT's (CUF.UN-T) plans to sell off about $1.2-billion (Canadian) of assets outside of Quebec, reduce its leverage and repurchase units.

She increased her rating on the REIT to "outperform" from "market perform" and raised her target to $15 from $13.50.

"The strategy brings Cominar back to its roots and what it was known for when it first went public: 1) core competency in the Quebec market; 2) a conservative balance sheet; and 3) development expertise. We like that the portfolio will be refocused on the Quebec market, which is performing well and is where CUF has a strong platform and competitive advantage," she said in a research note.

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IAMGOLD Corp. (IAG-N) agreed to buy the Saramacca property in Suriname mid-2016, paying $200,000 (U.S.) initially and $10-million on completion of due diligence plus 3.125 million shares to be released to the government in tranches.

"Since the acquisition, IAG has released a number of encouraging results from its Saramacca drill program and plans to complete a resource estimate at the project in the third quarter of 2017," said Andrew Kaip, analyst at BMO Capital Markets, in a research note. "We are of the view that the resource, when announced, will be higher grade and potentially larger than the company's initial estimate, which we believe, despite the shares being up about 50 per cent year to date, is not being fully reflected."

The analyst increased his target to $7.50 from $6 and increased his rating to "outperform" from "market perform."

"In our view, the upcoming maiden resource at the Saramacca deposit has the potential to provide additional soft rock to the Rosebel mill, at higher than current reserve grade, which should help to further reduce costs and lift the cash generative ability of the mine," the analyst said.

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AltaCorp. Capital Inc. analyst Thomas Matthews thinks he has found an undervalued small-cap name of interest.

Mr. Matthews initiated coverage on Prairie Provident Resources Inc. (PPR-T) with an 80 cent target and a "speculative" rating. The junior oil company's stock closed at 42 cents Tuesday and hit a 52-week low.

"We believe the main opportunity lies in Prairie Provident's valuation," the analyst wrote in a research note. "Investors are currently paying for less than the company's consolidated asset value, implying little consideration for the Evi consolidation [which it recently acquired] or its 2017 drilling program."

The company's growth profile is the fourth best in the analyst's junior exploration and production coverage area, the analyst said, noting that the target is based on a PDP NAV (proved developing producing net asset value) plus "risk undrilled upside" of $1 per share.

"Catalysts for the company include further well results from the most recent drilling program, additional waterflood response data points, commodity price recovery and subsequently future capital inflows into the Junior sector."

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About the Author
Executive Editor, Report on Business

Scott Adams is the executive editor for Report On Business and Globe Investor. He was previously the managing editor of Globe Investor. He has been a business journalist for more than 10 years, worked as an associate analyst on Bay Street and has been with The Globe and Mail since 2007. More

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