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Canadian Pacific Railway Ltd said on Tuesday that it should start shipping crude oil this summer from a soon-to-be-completed oil terminal in North Dakota's prolific Bakken shale prospect. (CP Rail/CP Rail)
Canadian Pacific Railway Ltd said on Tuesday that it should start shipping crude oil this summer from a soon-to-be-completed oil terminal in North Dakota's prolific Bakken shale prospect. (CP Rail/CP Rail)

Eye on Equities

CPR 'dream team' erases analyst's turnaround doubts Add to ...

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

Raymond James analyst Steve Hansen upgraded Canadian Pacific Railway Ltd. to “outperform” and boosted its target price after the railroad posted strong first-quarter results.

In raising his target by $15 a share to $145, the analyst is bucking a trend by some Canadian analysts who are warning investors to be cautious about the railway’s high-flying stock, and have targets well below the current stock price. The average Street target is $126.08 a share, according to Bloomberg data.

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“We had our doubts, but now we are convinced,” Mr. Hansen said in a report on Thursday. CP’s first-quarter profit of $1.24 a share exceeded consensus estimates of $1.21 a share, and his own estimate of $1.14 a share.

CP’s ability to deliver 51-per-cent year-over-year earnings growth despite extreme winter weather and other headwinds “provided the final dose of evidence we needed to comfortably declare this transformation is real,” he said.

Shares of CP have been surging over the past year, following a bitter proxy fight to oust former chief executive officer Fred Green; a fight won by U.S. activist investor Bill Ackman of Pershing Square Capital Management.

The run-up in the share price has been a vote of confidence in former Canadian National Railway Co. CEO Hunter Harrison’s ability to turn around the inefficient railway. His goal is to lower CP’s operating ratio – an industry measure of efficiency that compares operating expenses to revenue – to 65 per cent in four years.

“While the valuation might appear lofty versus recent history, we believe that CP’s new Dream Team, industry-leading earnings growth and untold long-term opportunities make it easily digestible,” Mr. Hansen said.

TD Securities analyst Cherilyn Radbourne is maintaining her “reduce” rating. She raised her target on Thursday by $3 a share to $109, but that was part of rolling forward the price horizon by one quarter.

“Our concern remains, however, that the stock is building in little room for error, particularly, in the context of a sluggish and uncertain global economy,” she said.

Canaccord Genuity analyst David Tyerman, who has a “sell” rating on CP, also increased his target by $6 a share to $111 because of a one-quarter valuation rollover. Mr. Harrison is targeting very large improvements in margins over the next four years, he noted. “We believe that much of the entire improvement program is discounted into the stock at this point.”

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Open Text Corp. received an upgrade from Cantor Fitzgerald analyst Tom Liston, who gives it a “buy” rating, saying he was pleased by by higher license revenue and strong cash flow in the third quarter as well as the announced dividend. “The dividend expands the universe of potential investors and we expect that it will be well received,” he said.

Target: The analyst also raised his target by $8 a share to $60 for the software services company. The average Street target is $69.60 a share.

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Desjardins Securities analyst Keith Howlett raised his target on Metro Inc. after the grocer reported second-quarter operating earnings per share of $1.02 versus 94 cents a year ago, and ahead of consensus estimates of $1.01 a share.

Target: The analyst, who maintains a “buy” rating, upped his target by $2 a share to $70.50. The average Street target is $68.14 a share.

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MacDonald, Dettwiler and Associates Ltd. is expected to win a “significant amount of high-margin projects in the United States in 2014, and major satellite contracts through its Loral division globally in the next 18 months,” said Industrial Alliance Securities analyst Al Nagaraj.

Target: The analyst, who maintains a “buy” rating, raised his target by $12 a share to $87. The average Street target is $77.70 a share.

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Tupperware Brands Corp. is expected to benefit from strong growth in emerging markets and a number of high-growth businesses that should outweigh any laggards, said RBC Dominion Securities analyst Jason Gere. “We continue to see a balanced portfolio of businesses that can create double-digit earnings per share growth long term.”

Target: The analyst, who maintains an “outperform” rating, boosted his target by $8 (U.S.) a share to $89. The average Street target is $84.44 a share.

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