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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)

RBC downgrades CP Rail, other analysts grudgingly hike price targets Add to ...

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

Analysts are quickly jacking up their price targets on Canadian Pacific Railway Ltd. after the company’s earnings beat this week, but they’re still a cautious bunch. Most revised targets only to the stock’s new trading range after it rallied 6 per cent on Wednesday.

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And at least one analyst downgraded the stock.

CP reported third-quarter earnings per share of $1.30, beating the consensus forecast of $1.23. But as RBC Dominion Securities analyst Walter Spracklin notes, consensus forecasts had come down substantially from about $1.36 just four weeks ago.

“As a result, the share price move out of the gate yesterday was, in our view, without merit,” he said in a research note today in which he lowered his rating to “sector perform” from “outperform.”

While he raised his price target by $5 to $91 a share, he thinks that too much optimism is built into the shares. With the stock trading at 17.4 times estimated 2013 earnings per share, versus the  11.9 times average of its peers, “CP is clearly being valued on a multi-year time-frame, over which period the market is baking in significant growth,” he said.

Canadian Pacific is in the early stages of a broad restructuring, which will include more efficient rail yards and a paring down of its work force. Newly installed chief executive Hunter Harrison said Wednesday that the program is ahead of schedule.

But Mr. Spracklin points out that many things could go wrong as the company aims to improve its operating ratio, a key measure that looks at expenses as a percentage of revenue, to 65 per cent over three years. These risks include a sluggish economy, inclement weather or labour unrest. The ratio stood at 74.1 per cent in the latest quarter, improving slightly from 75.8 per cent a year ago. Failing to reach that 65 per cent goal could mean a pullback in the share price, he warned.

Many other analysts also maintained hold ratings as they raised price targets, including Desjardins Securities’ Benoit Poirier, who raised his target by $10 to $92; CIBC World Market’s Jacob Bout, with his new target set at $95; and Raymond James’s Steve Hansen, who has a revised target of $92.

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BMO Nesbitt Burns analyst Randy Ollenberger upgraded Encana Corp. to “outperform,” believing that the natural gas producer is “on the right track” as it shifts emphasis to liquids.

“Proceeds from joint ventures should meet the anticipated funding gap in 2013 as well as future debt repayment obligations,” he said. “We also believe that gas prices could continue to move higher, assuming normal weather conditions,” which would make its gas portfolio more attractive.

Upside: Mr. Ollenberger raised his price target to $28 (U.S.)

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Several analysts raised their price targets on Rogers Communications Inc. after its earnings beat expectations. Rogers won praise for its wireless data and Internet growth, as well as for keeping costs down. But Canaccord Genuity analyst Dvai Ghose notes that sustaining free cash flow growth will be challenging.

Upside: Both Mr. Ghose and Desjardins Securities’ Maher Yaghi raised their price targets to $43.

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Agnico-Eagle Mines Ltd. “substantially” beat expectations on all measures in reporting its third-quarter results, commented National Bank Financial analyst Steve Parsons. But with its fourth-quarter production set to drop, and no increase to its 2013 guidance, “enthusiasm may be short-lived (weeks rather than months),” he said.

Upside: Mr. Parsons raised his price target by $2 to $50 but reiterated a “sector perform” rating.

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Canaccord Genuity analyst Greg Miller upgraded Akamai Technologies Inc. to “buy,” impressed by yet another strong quarter for the company that improves Internet content delivery, and by its increasingly solid outlook thanks to newer video applications. “It would appear that management has sustainably re-ignited top-line growth while maintaining a strict focus on costs that should results in a continued improving stock price,” he said.

Upside: Mr. Miller also raised his price target to $45 (U.S.).

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

 

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