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A CN locomotive makes it's way through the CN Taschereau yard in Montreal, Saturday, Nov., 28, 2009. (Graham Hughes/CP/Graham Hughes/CP)
A CN locomotive makes it's way through the CN Taschereau yard in Montreal, Saturday, Nov., 28, 2009. (Graham Hughes/CP/Graham Hughes/CP)

Analysts cautiously hike price targets on CN Rail Add to ...

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

Canadian National Railway Co. is enjoying several price target hikes by analysts today after reporting $664-million in third-quarter profits late Monday and announcing plans for buying back shares. But the company’s cautious outlook on the future has tempered enthusiasm.

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The railway’s quarterly profit, equal to $1.52 a share, was nearly equal to its performance a year ago and was in line with the Street consensus. Revenues grew at 8 per cent, benefiting from both volume and pricing growth.

But management cautioned that demand is becoming more uncertain and the railway faces pension and other cost headwinds in 2013.

“While CN management was cautious about the strength of the economy, they left guidance unchanged as they see continued opportunity to grow the business,” noted UBS associate analyst Hilda Maraachlian. CN expects 2012 earnings per share to grow 15 per cent from last year, which is what the Street had anticipated.

Ms. Maraachlian maintained a “neutral” rating and a $93 price target. But some other analysts raised their targets, including RBC Dominion Securities’ Walter Spracklin. He jacked up his by $5 to $92, though sliced his earnings estimates amid “near-term cost headwinds and difficult volume comparisons in 2013.”

Canaccord Genuity raised its price target to $96 from $93. “We continue to project low double-digit EPS growth over the long term from expectations of sustainable volume growth of GDP plus 0.5-1.0 per cent, sustainable price growth of inflation plus a small premium, an operating ratio in the low– to mid-60 per cent range, and capex as a percentage of sales in the 17-19 per cent range,” said Canaccord analyst David Tyerman.

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CIBC World Markets analyst Ian Macqueen upgraded Sterling Resources Ltd. to “sector outperformer” after the company announced it will sell a portion of its Midia block offshore Romania to ExxonMobil and OMV Petrom for at least $29.25-million. “SLG has improved its financial position and we expect further transactions could be announced,” said Mr. Macqueen, noting the funds raised should help resolve short-term funding issues.

Upside: Mr. Macqueen raised his price target to $1.90 from $1.75.

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BMO Nesbitt Burns downgraded Allied Properties REIT to “market perform” due to recent share price gains. The stock is up 13 per cent since mid-June, compared to 2 per cent for the S&P/TSX Capped REIT index. “We expect that the market is also paying for some future upside potential from an active development/intensification pipeline. There is risk, however, that a slower economy could reduce overall growth expectations and the size of the premium,” said BMO analyst Karine MacIndoe.

Upside: BMO raised its price target by $1 to $32.

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BMO Nesbitt Burns analyst Meredith Bandy believes shares in coal producing giant Peabody Energy Corp. could be ready for a rebound. “The coal markets remain challenging, but may be turning the corner,” said Ms. Bandy. Competing natural gas prices are higher, U.S. coal production is down, and Chinese demand is ticking up. Meanwhile, Peabody’s U.S. assets are in lower-cost basins that are competitive even at very low natural gas prices, she said.

Upside: Ms. Bandy set a new price target of $36.50 (U.S.) and reiterated an “outperform” rating.

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BMO Nesbitt Burns downgraded Canfor Pulp Products to “underperform,” believing that there will be an extended price war in pulp markets that will depress prices. “We recognize the low cost structure of Canfor Pulp; however, considering the oversupply of pulp, we are lowering our rating to underperform,” said BMO analyst Stephen Atkinson.

Downside: Mr. Atkinson has a $9.50 price target.

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For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities

 

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