Tuesday’s analyst upgrades and downgrades

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

Air Canada‘s (AC-T) 28% stock decline over the past three months has created an attractive buying opportunity not seen since the heart of the pandemic, according to Canaccord Genuity analyst Matthew Lee, who upgraded his rating on the airline to “buy” from “hold.”

“With a torrent of recent negative headlines weighing heavily on AC shares, we opine that there is now a window for investors with a longer time horizon to take advantage of what should be transient issues for the firm,” Mr. Lee said in a note to customers.

Mr. Lee did lower his price target on Air Canada, by C$2 to C$23, as he adjusted financial estimates for airline and aerospace stocks within his coverage because of the global economic challenges faced by the industry, including elevated fuel costs and continued pandemic -related restrictions.

But even with those downward revisions, he sees Air Canada attractively valued and “well positioned” for longer-term success.

“AC currently trades at 3.5x our fiscal year 2024 estimates, which is over 1x below US peers. Our target of $23 (which equates to a 44% return) represents a 4.3x fiscal year 2024 multiple, which we believe is still modest and adequately accounts for current economic conditions,” the analyst said.

Mr. Lee also slashed his price target on Cargojet Inc. (CJT-T), to C$200 from C$250, commenting that cargo operators have begun seeing some demand slowdown globally as inflation weighs on consumer spending. In North America, cargo demand in May fell 5.7% on a year over year basis, even with a 6.8% capacity increase.

“With that said, we expect CJT to deliver robust growth driven by Canadian ecommerce expansion, added ACMI [Aircraft, Crew, Maintenance and Insurance] routes, and charter strength as the firm continues to fly aircraft to Shanghai multiple times per week,” he said.

He still rates Cargojet a “buy.”

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Analysts have slashed their price targets on New Gold Inc (NGD-T, NGD-A) in reaction to weaker-than-expected second quarter production and downward revisions to 2022 guidance.

The company late Monday reported quarterly production of 70,500 of gold equivalent ounces, down 20% from the previous quarter. That was well below estimates from some analysts, mostly due to lower grade ore processed at its Rainy River operations amid rainfall and pit flooding. Production guidance for 2022 was cut 16% to a range of 325,000 to 365,000 ounces, and costs are expected to be higher as well.

RBC analyst Michael Siperco cut his price target to US$1 from US$1.50 but maintained a “sector perform” rating.

“We expect a negative market reaction to the results and the weaker 2022 outlook,” Mr. Siperco said in a note. “That said, we had already expected a materially weaker year in 2022, with lower production/higher costs forecast through the first half of 2023. While these results are disappointing, the longer thesis appears intact. Higher production from the UG mine at Rainy River and the C Zone at New Afton should drive substantial free cash flow from 2024 onwards,” he said.

He noted the New Gold trades at a significant discounts on a price to net asset value, and enterprise value to EBITDA, basis when compared to its mid-cap peers – even while having what Mr. Siperco calls “the best producer free cash flow yield profiles after 2023.”

Elsewhere on the Street, Scotiabank also cut its target to US$1, CIBC cut its target to US$1.40 from US$1.90, and National Bank of Canada cut its target to C$1.5 from C$2.5.

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Several analysts slashed their price targets – and at least one downgraded his rating – on Gap Inc. (GPS-N) after the retailer announced disappointing guidance for the second quarter and disclosed its CEO is stepping down.

Sonia Syngal, who held the CEO job since March 2020, will depart immediately, and Bob Martin, current executive chairman of the board, will serve as interim CEO until a successor is found. As part of the transition, Old Navy will be getting a new president: Horacio “Haio” Barbeito, who had been president and CEO of Wal-Mart Canada since 2019. The previous president, Nancy Green, was fired in April 2020 following a fashion miss that led to elevated inventory levels.

Gap said it had to discount product at an aggressive level in the second quarter to meet its growth rate, and as a result margins will take a hit.

Among the price targets: B. Riley cut his target to US$8 from $12; Barclays went to US$6 from $7; Credit Suisse reduced its target to US$8 from $10; and JP Morgan cut its price target to US$5 from $9.

Wells Fargo analyst Ike Boruchow slashed his target to US$10 from US$16 while also downgrading his rating to “equal weight” from “overweight.”

The analyst was clearly not impressed with the company’s performance, and the slowing macroeconomic picture which has been noted at other retailers is providing another headwind.

“The string of downbeat results from GPS continues,” Mr. Boruchow said, noting the company has now negatively pre-announced earnings for the past two quarters and that arrives after GAP significantly missed their fiscal year 2021 targets.

“While the macro is far from good today, the majority of these issues appear to be self-inflected and centered on Old Navy. As such, as we remain cautious on our space, we simply cannot continue to recommend a name that is juggling company specific challenges on top of growing macro pressure,” he said.

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In other analyst actions:

Andlauer Healthcare Group (AND-T): National Bank of Canada raises to outperform from sector perform

BCE Inc. (BCE-T): RBC cuts target price to C$68 from C$70

Cogeco Communications Inc. (CCA-T): RBC cuts target price to C$118 from C$127

Gildan Activewear Inc. (GIL-T): National Bank of Canada cuts price target to C$42 from C$64

Quebecor Inc (QBR-BT): RBC cuts target price to C$35 from C$36

Rogers Communications Inc. (RCI-BT) RCIb.TO: RBC cuts target price to C$75 from C$77

Nvidia Corp. (NVDA-Q): Cowen and Company cuts price target to US$200 from US$265

Wayfair Inc. (WN): Jefferies cuts target price to US$61 from US$80

GE (GE-N): Credit Suisse cuts target price to US$86 from US$102

Netflix Inc. (NFLX-Q): Morgan Stanley cuts target price to US$220 from US$300

Norfolk Southern Corp (NSC-N): Baird cuts price target to $280 from $335; JP Morgan cuts to neutral from overweight

More to come

With files from Reuters

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