Potash Corp. gets downgrade, sinks to 2-year low

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

Shares in Potash Corp. of Saskatchewan Inc. have dipped to more than two-year lows today after another fertilizer producer, Mosaic Co., sent chills through the sector by slashing its sales guidance late on Tuesday.

Blaming weak global demand for crop nutrients, Mosaic lowered its guidance for fiscal second-quarter potash volumes to between 1.3 million and 1.4 million tons, from an earlier projection of between 1.6 million and 1.9 million tons. It also lowered its guidance for phosphates volumes.

Shares in Mosaic are down 3.5 per cent today and Potash Corp. is being dragged down along with it, off 2.5 per cent at mid-afternoon to $37.80.

Given the continued signs of weakness in potash and phosphate demand, Canaccord Genuity analyst Keith Carpenter downgraded both stocks today to "hold" from "buy" and cut his price targets.

"The continued absence of potash supply contracts with major buyers in China and India (where a decline in the expected price appears all but assured), has created an environment where international spot markets have been delaying purchases in advance of an expected lowering of price, so that they do not expose themselves to price risk," Mr. Carpenter commented in a research note. "The problem here is that we've been here before and this is creating further uncertainty and volatility for producers, buyers and investors alike."

While fertilizer markets are currently in oversupply, the producers, as well as Mr. Carpenter, believe the problems are short term and the sector will eventually bounce back after contracts are reached in China and India.

Downside: Mr. Carpenter cut his target of Potash Corp. to $43 from $48 (U.S.); and on Mosaic to $55 from $65. He continues to rate shares of Agrium Inc. as a "buy" with a price target of $124 (U.S.).

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Bird Construction Inc. stock is "one of the safest ways to play the Canadian infrastructure and construction sector," Raymond James analyst Frederic Bastien says.

The contractor is moving through its seasonally strongest quarter of cash-flow generation and delivered very robust quarterly results, Mr. Bastien said, adding that he believes "investors will reap tremendous rewards for holding it for the long term."

Upside: Mr. Bastien rates the stock "outperform" and has a $16 price target, citing its track record of successfully managing project risk, healthy financial position and attractive dividend yield.

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AuRico Gold Inc.'s Young Davidson underground mine is ramping up production ahead of schedule, which should help the gold producer meet its targets for 2012, Canaccord Genuity analyst Rahul Paul says.

The stock has outperformed the S&P/TSX gold index by 32 per cent since it announced the sale of its Ocampo site in October, Mr. Paul wrote in a research note. "We see further re-rating potential considering the company's strong balance sheet and attractive organic growth profile from low-cost, long-life assets in low-risk jurisdictions."

Upside: Mr. Paul raised his price target to $11 (U.S.) from $9.50 and rates the stock as a "buy."

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Quebecor Inc.'s Videotron division reported third-quarter earnings and revenue that were "nicely ahead" of expectations, said CIBC World Markets analyst Robert Bek.

"Cable subscriber statistics were solid across the board, while the company's wireless offering continues to gain traction," he said. "With the core cable segment driving valuation at Quebecor, a solid third-quarter result at Videotron, and continued growth in wireless, we maintain our bullish outlook for the shares."

Upside: Mr. Bek raised his target to $43 from $41 and rates the stock "sector outperform."

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Several analysts have raised their price targets on Exchange Income Corp. after its third-quarter results beat expectations. The company enjoyed a surge in its manufacturing segment revenues as well as better-than-expected margins in its aviation business. "We believe there is significant upside potential to our valuation from organic growth, anticipated dividend increases and potential acquisitions," said Canaccord Genuity analyst Chris Bowes.

Upside: Canaccord raised its price target to $29.25, National Bank Financial hiked its to $32, and CIBC World Markets increased its target to $28.25.

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