Friday’s analyst upgrades and downgrades

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

Though Alamos Gold Inc.'s (AGI-T, AGI-N) $770-million (U.S.) acquisition of Richmont Mines Inc. is "slightly" dilutive to its net present value (NPV), BMO Nesbitt Burns analyst Brian Quast called the transaction "positive due to Alamos' ability to generate increased cash flows in the long term."

On Thursday, Toronto-based Alamos announced the completion of the deal, in which all Richmont issued and outstanding common shares were exchanged for 1.385 Alamos common shares.

"We estimate the transaction is 9-per-cent dilutive to AGI shareholders on a price-to-NAV [net asset value] basis and 4-per-cent accretive on a P/2018 estimate CFPS [cash flow per share] basis," he said. "We view the short-term NPV dilution as being an acceptable trade-off for the long-term benefits and flexibility afforded to the company."

Prior to the deal, Richmont had divested of its non-core Quebec assets, leaving its Island Gold mine in Northern Ontario as its lone operating asset.

Mr. Quast said Island Gold will provide near-term production growth, increased cash flow and exploration upside.

"The Island Gold Mine will boost AGI's near-term production to over 500,000 ounces Au annually and will strengthen Alamos' ability to generate cash flows and pursue future growth," the analyst said. "The Island Gold land package also has exploration potential that may benefit from the additional capital afforded by a larger corporation."

With an "outperform" rating, Mr. Quast lowered his target price for Alamos shares to $11.50 (Canadian) from $14.00, though he noted his company valuation "only slightly changed."

He said the drop came as "we homogenize our target multiples for midcap producers," adding: "Our Outperform rating is maintained. We look forward to seeing Alamos' plans to further develop Island Gold and obtain further value from the asset."

The analyst average target price is currently $12.40, according to Thomson Reuters data.

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RBC Dominion Securities analyst Seth Weber raised his financial estimates for Deere & Company (DE-N) in the wake better-than-anticipated fourth-quarter results and fiscal 2018 guidance.

The Illinois-based company's stock rose 4.3 per cent on Wednesday in response to its financial report, which included earnings per share for the quarter of $1.57 (U.S.), up from 90 cents a year ago and ahead of the projections of both Mr. Weber and the Street ($1.43 and $1.47, respectively).

Equipment revenue jumped 26 per cent year over year to $7.09-billion, topping the company's 24-per-cent outlook and above the analyst's estimate ($6.98-billion) and the consensus ($6.93-billion).

Mr. Weber said the beat reflects "improving demand for construction and farm equipment (including replacement-driven N. America HHP farm machinery) and A&T margin outperformance versus our expectation."

The company also announced 2018 net income guidance of $2.6-billion, which was higher than Mr. Weber's expectation of $2.37-billion and the $2.29-billion consensus. It included a $25-million contribution from the $4.8-billion acquisition of Wirtgen Group, a Germany-based road construction equipment manufacturer, which Mr. Weber expects to close in December.

Mr. Weber increased his 2018 EPS projection to $7.90 from $7.25 in order to include Wirtgen and to reflect better core business trends. His net income forecast rose to $2.59-billion from $2.37-billion.

Mr. Weber said: "We see forward questions/debates focused on 1) sustainability of N. America Ag demand bump given DE's outlook showing U.S. cash receipts and net cash income down in 2018 (from a raised 2017); 2) uncertainty in Brazil farm market, where industry tractor shipments have declined y/y for four consecutive months on tough comps and unsettled macro; 3) ability to offset potentially higher input costs in tough pricing environment; and 4) Wirtgen traction."

Keeping a "sector perform" rating for Deere shares, his target price jumped to $155 from $134. The analyst average is $147.74.

"We like the company's strong execution and cost measures should help support margins; likewise, we see Deere as well positioned to benefit from long-term global trends toward increased crop production and consumption," said Mr. Weber. "At this time, we expect demand for high horsepower equipment will remain subdued in core markets reflecting lower farm commodity prices and high levels of equipment sold in the prior upturn."

Elsewhere, Deutsche Bank analyst Nicole DeBlase upgraded the stock to "buy" from "hold" with a target of $167, rising from $149.

Credit Suisse analyst Jamie Cook raised her target to $162 from $141 with an "outperform" rating (unchanged).

Ms. Cook said: "The North American large AG equipment market continues to show signs of recovery. Specifically, DE's early order program for sprayers, planters and combines is up in the double-digit range. Additionally, visibility on large tractors like the 8Rs is out to March vs Jan/Feb last year, implying the replacement cycle is finally kicking in. This is coupled with strong organic growth in C&F coupled with Wirtgen. More importantly, DE's story into 2019 looks even more\ encouraging. In addition to what will still be early innings of a Farm Equipment recovery, DE's earnings beyond 2018 benefit from the lack of one-time items (purchase accounting/deal costs) in Wirtgen's margins (margins go from 2-3 per cent in fiscal 2018 more towards the 11-12-per-cent range), cost synergies associated with Wirtgen and potential for share repurchase again post the debt pay down."

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Maverix Metals Inc.'s (MMX-X) $20-million acquisition of a 2-per-cent net smelter return (NSR) royalty on Endeavour Mining's interest in the Karma gold mine in Burkina Faso adds to its growth, according to Raymond James analyst Brian MacArthur.

The transaction, announced Thursday, is expected to close before the end of 2017 with Maverix using cash on hand as payment.

"Karma is a shallow open pit, heap leach operation with a moderate strip ratio, making it a low-cost operation," the analyst said. "The property consists of 2 exploitation and 6 contiguous exploration permits totaling more than 856 square kilometres. Karma has achieved a run-rate of approximately 115,000 ounces of gold annually. In February 2017, Endeavour announced that the mine life had been extended to over 10 years. On Nov. 13, 2017, Endeavour announced that drilling has confirmed mineralization at the Yabongso target and has also discovered a parallel oxide structure east of the North Kao deposit, both of which are expected to be delineated into resources in 1Q18 and add potential to extend Karma's mine life."

Keeping an "outperform" rating for the stock, Mr. MacArthur bumped his target to $2 from $1.80. The average is $2.17.

"Given its small market capitalization and low trading liquidity, Maverix may not be a suitable investment for all investors," he said. "However for small cap investors, we believe MMX offers investors a gold-focused royalty/streaming company with gold equivalent growth as well as a flexible balance sheet, and therefore rate the shares Outperform."

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In other analyst actions:

RBC Dominion Securities analyst Irene Nattel raised her target for Dollarama Inc. (DOL-T) to $161 from $143 with an "outperform" rating (unchanged). The average on the Street is $148.80.

National Bank initiated coverage of Atlantic Gold Corp. (AGB-X) with an "outperform" rating and target of $2.40. The analyst average is $2.14.