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Freeport-McMoran Cooper & Gold’s Grasberg mine in Indonesia’s Papua province. (INDONESIA/REUTERS)
Freeport-McMoran Cooper & Gold’s Grasberg mine in Indonesia’s Papua province. (INDONESIA/REUTERS)

Freeport smacked with 6 downgrades as analysts lambaste energy plans Add to ...

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

Analysts didn’t waste much time in panning Freeport-McMoRan Copper & Gold Inc.’s deal Wednesday to expand into energy: no less than six of them have downgraded the stock in the past 24 hours.

Bank of Montreal, Deutsche Bank, Goldman Sachs, Macquarie, and RBC Dominion Securities cut their ratings to hold or its equivalent, according to Bloomberg. S&P Capital downgraded its rating to sell.

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Freeport-McMoRan revealed the complicated plan to acquire Plains Exploration & Production Co. and McMoRan Exploration Co. for $9-billion (U.S.) early Wednesday. It broadens the company’s focus to well beyond copper and gold, but most analysts say it's unnecessary and may wind up hurting its core mining business.

Freeport-McMoRan shares plunged 15 per cent on Wednesday, and lost a further 4.2 per cent today, hitting 15-month lows.

Investors are frustrated that Freeport is not allowing a shareholder vote on the deal, which will saddle the company will $20-billion in debt. They're also concerned about valuations of the transaction, considering the cross ownership of the companies. Jim Bob Moffett, chairman of Freeport-McMoRan, is also co-chairman and chief executive of McMoRan Exploration. In addition, Plains owns nearly one-third of McMoRan Exploration's shares.

"We believe that Freeport stock will remain in the penalty box for the foreseeable future and multiples will remain depressed on the back of these acquisition announcements, given investor uncertainty on the strategic merit," analysts at Goldman Sachs wrote in a research note, via Reuters.

BMO Nesbitt Burns said Freeport’s diversification into oil and gas removes a key investment draw of the company: its copper exposure.

Freeport explained when making the announcement that a big attraction was it could use low-cost financing to make attractive investments. But several analysts argue there is little strategic fit for the companies.

Despite analysts’ distaste for the deal and several of them cutting price targets, the average target on the Street right now is at $42.65, still well above the current stock price of $30.81. Eleven analysts rate the stock as a buy, nine as a hold, and only one as a sell, according to Bloomberg data.

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M Partners analyst Ron Shuttleworth downgraded Telenav Inc. to “hold” from “buy” after shares in the GPS solutions provider for mobile phones rallied sharply in recent weeks. The main catalyst for the stock rise had been better-than-expected quarterly results in late October.

Mr Shuttleworth, however, is still supportive of the stock. “We believe that Telenav’s products and commercialization strategies are as good and possibly better than its peer group, so we think that the stock should be properly valued in-line with its peer group from a multiple perspective,” he said.

Upside: Mr. Shuttleworth reiterated a 12-month price target of $8.

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Laurentian Bank of Canada faces pressure on its margins and loans as well as high expenses, particularly for compensation, said CIBC World Markets analyst Robert Sedran.

Synergies from its recent acquisition of AGF Trust are likely to be felt only in 2014, the analyst wrote in a research note.

Downside: Mr. Sedran lowered his target price to $51 from $53 and rates the stock “sector perform.”

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Canadian Pacific Railway Ltd. has simplified its organizational structure, and its management seems committed to improving service efficiency as well as using its assets better, Desjardins Securities analyst Benoit Poirier said.

“Although we are impressed with the operational improvements made in the third quarter and are more confident in CP’s ability to deliver results in 2013, further upside in the stock may be limited given the shares have rallied about 35 per cent in the year to date,” Mr. Poirier said.

“We still prefer Canadian National Railway over CP for 2012, as we believe there is more potential upside to CN’s share price at current levels, given we have more visibility on CN’s growth opportunities, and given its cheaper valuation and stronger balance sheet,” he added.

Upside: Mr. Poirier raised his Canadian Pacific target price to $93 from $92 and rates the stock “hold.”

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HudBay Minerals Inc. is likely to deliver “peer-leading growth” on both asset value and earnings over the next few years, said Raymond James analyst Alex Terentiew.

“With the new production ramping up in each of the next three years, HudBay is set to re-emerge as a multi-mine company, and concurrently increase its cash- generating abilities. Although the full extent of the growth will not be realized until 2016, we view 2013 as a time to start accumulating HBM shares,” he wrote in a research note.

Upside: Mr. Terentiew raised his rating to “outperform” from “market perform” and his target price to $11.75 from $11.50.

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

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