BMO urges investors to buy Iamgold while it's down

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

BMO Nesbitt Burns analyst David Haughton is making a gutsy call in the aftermath of Iamgold Corp.'s nearly 20 per cent plunge on Wednesday, advising investors to snap up the stock while its down.

And down it is again today, off another 70 cents at midday, or 5.8 per cent, at $11.28.

While the market doesn't seem to agree, Mr. Haughton thinks Wednesday's severe pullback is "overdone," based on his valuation metrics. He upgraded Iamgold to "outperform."

The gold miner reported lower-than-expected earnings on Wednesday and warned that 2012 production will be at the low end of its guidance. CEO Stephen Letwin said the mines that Iamgold owns and operates are doing well, but performance at mines where the company is not the owner and operator -- such as its Sadiola and Yatela projects in Africa -- has been disappointing.

Mr. Haughton said he was already assuming lower production at Sadiola and believes the market's concern over slower development at Iamgold's Westwood and Niobec projects appears overdone.

He notes that, after Wednesday's big plunge, Iamgold is now trading at 0.8 times estimated net present value using current spot prices for copper. That's a significant discount to the 1.2 times senior producers are trading at. (Net present value is the current value of net cash inflows generated by a project, less the initial investment of the project.)

Upside: Mr. Haughton maintained a $17 (U.S.) price target.

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UBS analysts believe investors should refrain from buying shares of Inmet Mining Corp. as the company continues to fund the hefty development costs of its $6.2-billion Cobre Panama open pit copper project in Panama.

UBS analysts recently visited the site, where construction camps, access roads and the port are ramping up. "Given the project's early stage, progress is hard to gauge; construction is reportedly one-month behind schedule but the timeline going forward includes contingencies," they noted in a research note today.

One key concern, however, is the price of copper, which is back to testing its lows of this past summer and hurting the value ascribed to the project.

"With substantial cash being sunk in a currently net asset value-negative project, we downgrade our rating from 'buy' to 'neutral.' "

Downside: UBS cut its price target to $55 from $60.

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Loblaw Cos. Ltd. faces the challenge of "running hard to stand still" on the competitive Canadian grocery landscape, said Raymond James analyst Kenric Tyghe.

The retailer made "impressive" gains in its financial services revenue, improved its buying synergies and vendor management, and lowered transportation costs in the third quarter, Mr. Tyghe said. Still, its gross margin expansion was only 20 basis points and Loblaw faces "increased competitive intensity" and the challenge of providing value to customers amid food inflation, he wrote in a research note.

Downside: Mr. Tyghe lowered his target price to $38.00 from $42 and rates the stock "outperform."

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Sterling Resources Ltd.'s unexpected decision to raise as much as $45-million through an equity offering will be "highly dilutive," CIBC World Markets analyst Ian Macqueen said.

"Sterling has long focused on expanding its assets and not its balance sheet. Funding has been a longstanding problem... and will continue to be a problem without further asset sales and farm-outs," he wrote in a research note. A series of delays at its Breagh Field has also put the company in a tenuous position.

Downside: Mr. Macqueen cut his price target to $1.50 from $1.90 and his rating to "sector perform" from "sector outperform."

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Birchcliff Energy Ltd. sees production for 2013 remaining roughly flat, which could dampen some investors' expectations, Canaccord Genuity analyst Steve Toth said.

"We assume Birchcliff will update its guidance in mid-February and could accelerate its plans depending on natural gas prices," Mr. Toth said.

Upside: Mr. Toth raised his target price to $6.50 from $5.50, pointing out that 2013 will bring lower financial leverage, higher gas prices and stronger volumes. He rates the stock "sell."

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