TD Securities today upgraded Manitoba Telecom Services (MTS) from Buy to Strong Buy, and downgraded BCE from Strong Buy to Buy.

Here is an excerpt from TD's four page report on MTS, published today:

"We maintain our forecasts and target price for MTS (MBT) shares, but our rating goes to Action List BUY from Buy owing to the material underperformance of the stock versus other telcos with a similar profile. Exhibit 1 shows that MBT shares are down 10% since December 12, while BCE shares are up 24% and Bell Aliant units are up 10% (this date is used because it coincides with our addition of BCE shares to our Action List - we are removing BCE shares today to make room for MBT). This is a significant divergence in performance for high yielding telcos with similar balance sheet strength and similar wireline exposure. MBT shares are now the least expensive in the group, and they offer the highest dividend yield at 8.2%. Despite the weak macro environment, we see stable results being likely for MTS in 2009, and we see virtually no risk of a dividend cut in the foreseeable future. Without assuming any strategic catalysts (takeover, leveraged recap, or sale of Allstream), we forecast a 44% annual return from current levels, which we view as excessive given the low risk profile and high dividend yield for this name, so MBT is now our top defensive/income pick in the Canadian telecom & cable sector..."

And here is an excerpt from today's report on BCE:

"We are making room for MTS (MBT) shares on our Action List, as our forecast return for BCE of 24% is now well below our expected return of 44% for MBT. In our view, both stocks have limited cyclicality, strong balance sheets, stable FCF, and high dividend yields, but MBT is now too inexpensive relative to BCE for us to recommend BCE as our top defensive/income pick in the sector. Our Q1/09 preview is below, but it should be noted that our downgrade is not based on fears of weak wireless results in Q1. We believe that Bell Mobility held up much better than TELUS Mobility in Q1, and we remain confident that BCE will meet both its guidance and consensus expectations for 2009. For any value/income investors who view MTS as being too small for their portfolio, we would continue to recommend BCE...."

TD's 12-month target prices for the two stocks are not changing. TD is leaving the MTS target at C$43.00 and the BCE target at C$31.00.