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The new iPhone X is pictured at the Apple Store Marche Saint-Germain in Paris on Nov. 3Benoit Tessie

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

Imperial Oil Ltd. (IMO-T) possesses an "admirable upstream portfolio with toward low-decline properties and attractive downstream assets," according to RBC Dominion Securities analyst Greg Pardy.

After recent "constructive" meetings with the company's chairman, president and chief executive officer Rich Kruger, Mr. Pardy said he could become increasingly bullish toward Imperial amid "tangible" evidence that its Kearl oil sands project has moved closer to higher sustained production rates and lower operating costs.

Accordingly, citing the potential return to his target price for the stock, he upgraded the Calgary-based energy producer to "sector perform" from "underperform" ahead of the release of its fourth-quarter results on Feb. 2.

"Imperial also appears open to suggestions regarding enhanced operating and financial disclosure — a necessity in our view," he said. "Our sense from talking with Imperial is that the company will remain focused on organic growth initiatives, as opposed to pursuing transformational acquisition opportunities. BC LNG does not appear to be on Imperial's radar for the foreseeable future."

Mr. Pardy said the company emphasized that the resumption of share buybacks, which commenced in the second quarter of 2017, would not have occurred if it was not deemed to be sustainable.

"Under its normal course issuer bid (renewed in June 2017), Imperial can repurchase up to 25.4 million shares (3 per cent) of its common shares over the subsequent 12 months," he said. "In its third-quarter release, the company indicated that it intended to repurchase about $250-million of its shares in the fourth quarter of 2017. We believe that Imperial's share buyback has legs and may continue at a pace of about $250-million per quarter throughout 2019. Accordingly, our updated 2018-19 estimates now reflect annual share repurchases of approximately $1.0-billion (up from $400-million in 2018 and nil in 2019). As of September 30, Imperial had repurchased 10 million shares during the year at a cost of $377-million. The company will continue to target a reliable and growing common share dividend that we peg at 65 cents per share (2 per cent) in 2018."

In reaction to the meetings, Mr. Pardy increased his 2018 earnings per share projection by a penny to $1.79 and his 2019 expectation by 4 cents to $2.06.

Also anticipating higher cash flow through 2019, he raised his target price for Imperial Oil shares by a loonie to $41. The analyst average target price is $40.52, according to Bloomberg data.

"IMO is trading at a premium debt-adjusted cash flow multiple of 11.1 times (versus our Canadian Integrated peer group avg. of 8.2 times) in 2017, 9.2 times (versus our peer group at 7.2 times) in 2018, and 8.2 times (versus our peer group at 6.6 times) in 2019; and at a price-to-NAV ratio of 1.35 times (versus peers at 1.20 times)," he said.

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BMO Nesbitt Burns analyst Timothy Long feels the average selling price for Apple Inc.'s (AAPL-Q) iPhones is likely to "plateau as with the rest of the industry" following over 10 years of gains, leading him to downgraded his rating for the U.S. tech giant to "market perform" from "outperform."

"There has been much in the press about order cuts for iPhone X, and we believe a weaker mix in Q1 will push estimates lower for March and beyond," said Mr. Long. "We expect a meaningful guide lower when the company reports on Thursday night, on the order of $5-6 billion compared to consensus revenue estimates."

With the release of its quarterly results on Thursday, Mr. Long anticipates Apple will give second-quarter guidance that falls "well below the current consensus" and expects a weaker mix of iPhone X sales will push estimates lower beyond the second quarter.

"We still view the iPhone base as growing, and the devices are on average getting older," he said. "However, without a compelling product cycle in September, we may see a slow upgrade cycle once again. The recent stock reaction reminds us of early 2016, but later that year many investors started looking towards OLED and the 10-year anniversary phone, which drove the stock higher. No such product is on the horizon now.

Mr. Long added: "We expect no growth year over year in the China market, a reversal from last quarter's 12-per-cent growth. We believe China sales will be about flat in December, with units down 9 per cent year-over-year."

His target for Apple shares fell to $162 (U.S.) from $199. The average target on the Street is currently $192.27.

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Scotia Capital analyst Sumit Malhotra expects fourth-quarter results for Canadian life insurers to cap off a "solid" 2017 from an operating perspective.

However, in a research report released Wednesday, Mr. Malhotra said share price performance for the sector, which has collectively risen 6 per cent since the start of 2017, has not kept pace with its core earnings per share trend, calling it a "recurring" theme.

"Candidly, we think the widening valuation gap between the lifecos and their Canadian bank peers (lifecos at 10.1 times our 2019 estimates, banks at 11.5 times) speaks to the greater confidence that investors have in the consistency of earnings power for the banks, a reminder of which has been on display as a result of the sizable charges announced across the Canadian and U.S. life insurance sector over the past month (MFC, GE, MET)," he said.

"That said, after the 2-per-cent increase in our estimates we see the lifecos growing operating EPS at a 10-per-cent CAGR [compound annual growth rate] in 2018/19, which provides an interesting set-up for the stocks in the context of reduced valuations and a constructive macro backdrop."

Mr. Malhotra said he's expecting a "modest" 1-per-cent decline in EPS from 2017 for the sector, emphasizing tough year-over-year comps are likely to constrain growth.

"[We expect] positive contributions from GWO, IAG and SLF (led by SLF at up 13 per cent year over year) being offset by a sharp decline at MFC (down 10 per cent year over year," the analyst said. "We should note that the decrease in our core earnings estimate for MFC is in large part a reflection of the outsized investment gains and low 11.8% tax rate the company benefited from in the year-ago quarter. Sequentially, we expect sector earnings to be down 4 per cent, led by a 7-per-cent quarter-over-quarter decrease in earnings from GWO as we do not expect the large bump in earnings from management actions / assumption changes which drove their elevated Q3/17 print to be fully sustainable moving forward. The key macro factor impacting our estimates this quarter was the strong global equity market performance.

"We see reported EPS moving to a loss position in Q4 mainly on the back of a slew of charges related to U.S. tax reform and repositioning. SLF and MFC have pre-released estimated upfront charges related to U.S. tax reform of $200-million and $1.9-billion, respectively; while MFC has also pre-released an estimated $1.0-billion provision the company will take to commence selling off its ALDA portfolio. We have also baked a $50-million pretax restructuring charge into our Q4 estimates for SLF. Based on management's guidance, we have estimated GWO will take an upfront hit of $147-million in Q4 related to U.S. tax reform. To be clear, in all cases the charges related to tax reform or repositioning are not included in our 'operating' EPS."

In the note, Mr. Malhotra upgraded Sun Life Financial Inc. (SLF-T) to "sector outperform" from "sector perform."

"Having espoused a warmer view towards SLF for a few months now, we are going to make it 'official' by upgrading our rating on the stock ... and moving the name to the high-end of our lifeco pecking order," he said. "After a sluggish 2017 in which the shares were flat, we are of the view that SLF merits a sector-best valuation as a result of (1) less write-down / capital risk; (2) strong leverage to the U.S. (re-pricing in Employee Benefits, tax reform, AUM [assets under management] growth at MFS); and (3) our view that Q4/17 will mark an inflection point in Expected Profit growth.

"Though SLF has made up valuation ground over the past few months (now at 10.7 times our 2019 estimate, a 5-per-cent premium to the group avg. of 10.1 times), we think its mix of 'offence-and-defence' is well-suited for the current environment, and expect that both the multiple and EPS growth will remain at the high-end of the sector throughout 2018."

Mr. Malhotra raised his target for Sun Life shares to $63 from $57. The average target on the Street is $56.92.

He made the following other target price changes:

- Great-West Lifeco Inc. (GWO-T, "sector perform") to $40 from $39. Consensus: $37.70.
- Manulife Financial Corp. (MFC-T, "sector outperform") to $32 from $31. Consensus: $31.24.

He maintained a $68 target for Industrial Alliance Insurance and Financial Services Inc. (IAG-T, "sector perform"). Consensus is $65.78.

"We are moving to balance our ratings within the group by upgrading SLF to a SO-rating, and our pecking order on the stocks now ranks them as SLF, MFC, IAG, & GWO," he said.

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The Supreme Cannabis Company Inc. (FIRE-X) sits in a "strong" position to supply the recreational marijuana market, according to PI Financial analyst Jason Zanberg.

Believing Toronto-based company, formerly Supreme Pharmaceuticals Inc., is benefiting from a rapid buildup in its supply capabilities and a low cost operating model, he initiated coverage of the stock with a "buy" rating.

"Supreme was fortunate to be among the first LPs to go public and after it achieved its cultivation license, the company was able to raise over $75-million in capital before it was awarded its dried flower sales license," the analyst said. "This capital was utilized to quickly ramp up production capabilities and in October 2017, four months after achieving its sales license, Supreme has current capacity of 5,000 kilograms per annum ranking it 6th in Canada based on current capacity."

"The Company prides itself as one of the premium cannabis producers among the ACMPR licensed cultivators. Supreme's initial strains have received strong reviews on user forums. Based on Lift reviews, an online cannabis portal, Supreme's strains (branded as 7ACRES) have earned ratings near the top of rankings with an average rating of 4.5/5.0."

Mr. Zanberg emphasized the fact that Supreme sells its cannabis through wholesalers, rather than directly to patients. He believes that will provide it with flexibility moving forward, allowing the company to sign supply agreements without obligations to a patient base.

"Not only does Supreme employ a low cost greenhouse model but its operating costs are lower than the average LP in Canada," he said. "This is due to the fact that Supreme does not pay costly fees and expenses to acquire and maintain medical cannabis patients. Supreme's B2B model avoids the cost of paying education fees/expenses to clinics/physicians, maintaining call centers and ecommerce platforms as well as the cost of packaging individual patient prescriptions."

Mr. Zanberg set a price target of $4.50 for Supreme shares. The analyst average is $2.45.

"We believe The Supreme Cannabis Company represents good relative value in the cannabis sector," he said. "Its current capacity is comparable to many of the recognized leaders yet FIRE's market cap is a fraction of these companies."

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Polaris Infrastructure Inc.'s (PIF-T) "robust" drill results from its San Jacinto geothermal facility reinforce the significant potential upside to both the capacity and cash flow for the project, said Raymond James analyst David Quezada.

"Coupled with potential additional near-term catalysts including M&A related growth (and diversification) as well as longer-term opportunities such as the binary unit project, we see potential for further growth and support of an expanded trading multiple," he said.

On Tuesday, the Toronto-based company, which focuses on renewable energy projects in Latin America, released an update to its 2017 and 2018 drilling program at San Jacinto, which is owned and operated by its operating subsidiary Polaris Energy Nicaragua S.A..

Mr. Quezada said San Jacinto is delivering "impressive" results, noting: "The second production well of the drilling program, the SJ 12-4, was completed in Nov. 17 and after a period of thermal recovery, was discharged into the atmosphere on Jan. 16, with initial productive capacity of 4-6 megawatts (MW). The third new production well, the SJ 12-5, was completed at the beginning of 2018, with tests suggesting higher permeability and temperature than the SJ 12-4 well. The SJ 12-5 well was discharged on Jan-25-18 and has shown productive capacity of 8-12 MW. We note that these results are initial and subject to change, but nonetheless have yielded impressive potential results. Despite the previously drilled SJ 4-2 well coming in below expectations, the two new production wells have shown significant potential, and expand the production zone of the San Jancinto field to the north. To summarize this potential new capacity could add 15 MW (midpoint) or 23 per cent to existing capacity and 50 per cent to cash flows. As our estimates include some success for positive drilling results, we will await stabilization of the new wells prior to revising our estimates."

Maintaining an "outperform" rating for the stock, Mr. Quezada raised his target to $28 from $25. The average among analysts covering the company is $25.25.

"With the stock trading at 5.3 times 2019 estimated enterprise value-to-EBITDA and a steep discount to the peer group average of 10.0 times, we expect multiple expansion is well warranted given the success of the drilling program to date," he said. "In addition, consistent with management commentary, potential expansion in Latin America via M&A could also close the gap with its peers."

Elsewhere, Echelon Wealth Partners analyst Russell Stanley increased his target to $29 from $25, keeping a "speculative buy" rating.

"We continue to view Polaris as an undervalued play given its high level of revenue and EBITDA visibility, multiple growth options, and potential for significant dividend growth," said Mr. Stanley.

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Desjardins Securities' Bill Cabel said Crius Energy Trust's (KWH.UN-T) annual analyst day reinforced his positive outlook for the company.

"We continue to believe that investors buying the name at current levels are paying for a favourably valued, solid core retail energy business with organic growth and essentially free options on the upside potential from the solar business and partnerships (eg Comcast)," he said.

However, he lowered his target price for units of the Toronto-based company based on a lower earnings projection for both 2018 and 2019.

"Overall, we believe the company did an excellent job at its analyst day and outlined a clear and positive outlook," he said. "The biggest news, in our view, was the announcement of an updated capital allocation strategy under which the company will refocus on growing distributable cash flow per unit, which at this point includes implementing an NCIB and stopping pre-planned quarterly distribution increases. The main areas of focus, as presented at the analyst day, are (1) organic growth opportunities and M&A, (2) the capital allocation program, and (3) an update on synergies."

Mr. Cabel added:  "Management provided a very solid and consistent message focused on growth though better management of margins and cost control, improved organic growth, and near-term M&A that could very easily much more than offset the negative impacts of tax reform. However, we will take a more conservative 'wait and see' stance on these initiatives at this point. In addition, we made some small tweaks to our model, which mainly involves delaying the solar contribution in 2018, which modestly reduces our estimates. We account for the new capital allocation strategy by removing future preplanned quarterly distribution increases, which we modelled in 2018."

His adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) projections for 2018 and 2019 fell to $105.2-million and $117.7-million, respectively, from $108.1-million and $120.3-million.

Keeping a "buy" rating, his target for Crius units fell to $12.25 from $12.50. The average is now $11.30.

"We believe continued solid growth from all segments, including an improvement in the solar business, potential upside from strategic partnerships and potential M&A, should drive strong value creation for investors," he said. "Overall, we believe the units represent good value with an attractive yield, and the combination of robust growth and yield gives us conviction in our Buy rating."

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RBC Dominion Securities analyst George Hill feels "tectonic shifts" in the U.S. health-care industry warrant a change in perspective toward Express Scripts Holding Co. (ESRX-Q).

In the wake of a recent "sharp" pullback in share price for the St. Louis-based company, which is currently the largest pharmacy benefit management organization in the U.S., Mr. Hill upgraded the stock to "outperform" from "sector perform," believing Amazon.com Inc.'s (AMZN-Q) entry into the health-care sector "de-risks" the stock.

"Our vertical integration thesis is beginning to take shape following CVS' announced deal for Aetna," the analyst said. "Going forward, there are now fewer healthcare services assets of scale that become attractive acquisition targets or M&A participants. We believe ESRX is one of the few remaining assets at scale and now deserves more of a premium to other drug supply chain names."

"From an operating perspective, we now view ESRX as likely having more tailwinds than headwinds now that the Anthem decision is behind us. On the positive side of the ledger for ESRX we believe it is likely to take PBM share on the heels of the CVSAetna merger announcement, M&A optionality is now likely a positive, continued growth in specialty/rebates/biosimilars should drive further EBITDA/Rx expansion, recent tax clarity provides a boost to earnings, the company's cash flow optionality can be used to enhance EPS growth. Thus, after Anthem clarity and the recent Amazon announcement, we believe all of the feared bad news is now reflected in ESRX shares."

Calling the risk-reward proposition for investors "compelling," he hiked his target price for Express Scripts shares to $98 (U.S.) from $68. The average on the Street is $81.78.

"ESRX shares now represent one of the few 'cheap' stocks in this market trading at less than 11.5 times our 2020 EPS estimate of $6.99," he said. "We believe that as we move closer to visibility on the 2020 earnings power, ESRX shares are likely to trade closer to 15 times, or about $105. We discount that back a year and use a 14-times multiple for a 12 month share price of $98 (from $68), implying about 24-per-cent return to the current share price."

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In other analyst actions:

National Bank Financial analyst Adam Shine downgraded Thomson Reuters Corp. (TRI-T, TRI-N) to "sector perform" from "outperform" and lowered his target to $60 from $69. The average is $58.48.

Barclays analyst Duffy Fischer upgraded DowDuPont Inc. (DWDP-N) to "equal-weight" from "underweight" and raised his target to $80 (U.S.) from $72. The average is $83.35.

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