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The Tembec softwood lumber plant in in Senneterre, Que. Tembec said its fourth-quarter results were in line with expectations, with improving lumber profitability helping to offset the negative impact of difficult paper pulp markets. (Jacques Boissinot/The Canadian Press)
The Tembec softwood lumber plant in in Senneterre, Que. Tembec said its fourth-quarter results were in line with expectations, with improving lumber profitability helping to offset the negative impact of difficult paper pulp markets. (Jacques Boissinot/The Canadian Press)

BMO gives rare two-notch upgrade to Tembec Add to ...

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

BMO Nesbitt Burns has upgraded Tembec Inc. two notches, encouraged by an improving outlook for lumber markets and the positive impact expected from the company’s closure of its high-cost mill in Chetwynd, B.C.

The stock is also down 55 per cent from its 52-week high, making for a much more attractive entry point. BMO’s Stephen Atkinson notes that Tembec is one of the most inexpensive stocks in the lumber sector right now, with an enterprise value to earnings before interest, taxes, depreciation and amortization ratio of 4.8 times based on his 2013 estimates.

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Upside: Mr. Atkinson raised his rating to “outperform” from “underperform.” Typically, analysts only change their ratings by one notch, which in this case would have been "sector perform." His price target is $2.20.

Read more: Tembec losses soar in fourth quarter on impairment charge.

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RBC Dominion Securities analyst Seth Weber has nudged up his price target on Deere & Co. after the farm and construction equipment giant reported a mixed fiscal fourth quarter on Wednesday.

The company posted weaker-than-expected profit as higher manufacturing costs and other expenses cut into earnings, but sales topped expectations.

“With farm equipment sales growth expected to slow, the focus increasingly turns to DE’s ability to reverse recent cost headwinds and operational hiccups to drive incremental earnings growth,” commented Mr. Weber.

Upside: Mr. Weber raised his price target by $4 to $90 (U.S.) and reiterated a “sector perform” rating.

Read more: Deere profit falls short of forecasts.

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Spartan Oil Corp., which said Wednesday it plans to merge with Pinecrest Energy, may well attract higher bids because of its strategic assets, Raymond James analyst Luc Mageau said.

If the deal with Pinecrest goes ahead, the combined company plans to pay an 8.8 per cent yield, based on Wednesday’s closing price for Spartan, he wrote in a research note. The transaction will also be dilutive for Spartan shareholders.

“We continue to believe the Spartan assets lend themselves very well to a dividend plus growth model. However, we are less familiar with the Pinecrest assets and, given the higher capital efficiencies posted by the company, suspect that the Spartan assets will be doing the bulk of the heavy lifting under the revised corporate structure, at least over the near-term,” he said.

Downside: Mr. Mageau lowered his price target to $6 from $7.50 and rates the stock “outperform.”

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CGI Group Inc. is likely to report “messy” third-quarter earnings next week after its recent acquisition of Logica, but the longer term trend is positive, Desjardins Securities analyst Maher Yaghi said.

“While recent revenue metrics for Logica have been disappointing, we would highlight that recent results from European companies in the space have shown stabilization trends,” he wrote in a research note.

“In addition, CGI’s shares have declined by 6 per cent in the last 30 days on lower expectations related to the Logica acquisition. We believe the shares currently discount a flat revenue run rate for Logica over the next couple of years, which is more conservative than the 3–6 per cent growth rate previously assumed.”

Upside: “Over the long term, we still see good upside potential in the stock and continue to recommend buying the shares–we expect Logica to allow CGI to cross-sell many services given its now more global presence, which should help overall organic growth and profitability,” Mr. Yaghi said. He rates CGI “buy” and has a $28 price target.

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B2Gold Corp. is a “success story, where management has transformed an exploration company into company with a $1.4-billion market capitalization in a relatively short time,” Stonecap Securities analyst Brian Szeto said.

The company trades at a premium because it has proven expertise in every part of the mine development cycle and will be considered an intermediate gold producer by early 2013, he wrote in a research note.

Upside: Mr. Szeto initiated coverage of B2Gold with an “outperform” rating and a $5.40 price target.

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Also today, National Bank Financial analyst Kris Thompson raised his price target on Research in Motion Ltd. to $15. Read more from Inside the Market's David Berman.

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

Follow us on Twitter: @eyeonequities, @SVerma__

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