Wajax could be in for some short-term pain, as slowdowns in the mining and energy sectors could have adverse effects.
Inside the Market's roundup of some of today's key analyst actions. This file will be updated during the trading day.
Duluth Metals Ltd. is quickly running out of cash and could be heading towards a highly dilutive financing to stay afloat, warns CIBC World Markets analyst Tom Meyer.
He reiterated a "sector underperformer" rating and slashed his 12- to 18-month price target all the way to 5 cents, from 40 cents.
Duluth released highlights of a pre-feasibility study on its 60-per-cent owned Twin metals copper-nickel-platinum group metals project on Aug. 20. Although details of the study will not be available until early October, Mr. Meyer expects the project to have a negative net present value based on his projections for commodity prices. Net present value is the difference between the present value of future cash flows and the amount of investment that is being made.
Mr. Meyer notes that Duluth Metals only had $6-million in cash remaining as of Aug. 12, is budgeting $3.3-million in second half 2014 general and administration expenses, and is looking at a $4.2-million (U.S.) funding requirement for Twin Metals. A $30-million (Canadian) convertible debenture and a $12.1-million (Canadian) bridge loan are outstanding, as is a $1.1-million (Canadian) interest payment that is due in the fourth- quarter of this year.
"A strategic review of alternatives is under way, but, in our view, the cash may run out before it can be completed," Mr. Meyer said in a research note. "Failing to find a buyer for the project or the company as a whole would force Duluth into a highly dilutive financing in order to continue as a going concern."
The analyst consensus price target for Duluth Metals over the next year is 68 cents, according to Bloomberg data.
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After underperforming its peers for most of the last two years, Wajax Corp. now trades at one of the lowest multiples in the machinery group of stocks, Raymond James analyst Ben Cherniavsky said.
He upgraded the stock to "outperform" from "market perform" and raised his price target to $45 (Canadian) from $38.50.
"We have been neutral on this stock for almost exactly two-and-a-half years, but believe that the risk-return profile has sufficiently improved to warrant a more positive bias going forward," he said.
The analyst consensus price target for Wajax over the next year is $37.64, according to Thomson Reuters data.
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With the acquisition of a pipeline system tapping North Dakota shale fields, Pembina Pipeline Corp. has gotten "a foot in the door" of the Bakken formation, "while getting paid to do so," RBC Dominion Securities analyst Robert Kwan said.
On Tuesday, Pembina announced a deal to acquire the 700-kilometre Vantage ethane pipeline, as well as a plan to build a new propane export terminal in Portland, Ore.
"The acquisition provides Pembina with upside options including volume growth and/or additional investment in infrastructure," Mr. Kwan said. Meanwhile, the new terminal "will help Pembina provide upside price optionality for increasing propane supply."
He raised his price target to $53 (Canadian) from $51 while maintaining an "outperform" rating. The analyst consensus price target for Pembina Pipeline over the next year is $50.73.
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While CGI Group Inc. is facing earnings pressure from limitations on U.S. government spending, the IT company still has good prospects through its U.S. commercial and European businesses, Desjardins Capital Markets analyst Maher Yaghi said.
"We believe CGI's build-and-buy strategy still has room to provide investors with additional upside in the coming months," Mr. Yaghi said. He reiterated a "buy" rating and a $46 (Canadian) target price.
"At current valuation levels, our view is that CGI offers investors attractive returns, with potential for further upside should the company pursue accretive acquisitions," he said.
The analyst consensus price target for CGI Group over the next year is $45.56.
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M Partners analyst Manish Grigo has initiated coverage on Sandvine Corp. with a "buy" rating and $4.50 (Canadian) price target, believing the seller of hardware and software to the telecommunications sector will benefit from expected huge growth in wireless traffic.
A recent report by Cisco suggested that overall global mobile data traffic will grow 11 times by 2018 over 2013 levels. "We believe Sandvine is well placed to take advantage of this global explosion in demand for wireless data services. Its products and services enable efficient usage of existing infrastructure and allow operators the flexibility to allocate resources at an individual customer level," Mr. Grigo said in a note.
Sandvine's revenue from wireless service providers has grown from $18-million in its 2009 fiscal year to over $38-million in 2013, representing compounded annual growth of 20 per cent.
He also likes Sandvine because it's difficult for new entrants to break into its market, and the company is seeing improving margins as well as growth.
Mr. Grigo also thinks Sandvine could become an acquisition target. "Given Sandvine's large installed base and pristine balance sheet with a large cash component, we believe it could be an attractive target for a larger player. However, our recommendation does not rely on its value as an acquisition candidate," he commented.
The analyst consensus price target for Sandvine over the next year is $4.13.
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In other analyst actions:
CIBC World Markets downgraded Dundee Precious Metals to "sector perform" from "sector outperform" with a price target of $6 (Canadian) per share.
Morgan Stanley initiated coverage on Detour Gold with an "equal-weight" rating and $15.50 (Canadian) price target.
Morgan Stanley initiated coverage on Semafo with an "underweight" rating and $5 (Canadian) price target.
M Partners initiated coverage on Sandvine with a "buy" rating and one-year target price of $4.50 (Canadian).
Cormark Securities initiated coverage on Spartan Energy with a "buy" rating and $5.50 (Canadian) price target.
Sanford Bernstein downgraded Tata Motors to "market perform" from "outperform" with a price target of $44.17 (U.S.).
Darcy Keith