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SNC rises, but analysts maintain targets Add to ...

After SNC-Lavalin Group Inc. agreed to buy Atomic Energy of Canada Ltd.’s Candu business last week for $15-million, New Democratic Party MP Nathan Cullen criticized the Canadian government, saying that “the buyers had a desperate seller who didn’t know what they were doing and they were able to take advantage.”

So, is this good news for SNC then? Investors seem to think so, driving the shares up 8.6 per cent last week and 4.1 per cent on Thursday alone – the first day when investors could trade on the news. Analysts also seem relatively upbeat, noting that SNC gets a lot of the upside potential without assuming much of the downside risk (Ottawa gets that part).

But as far as raising estimates or recommendations on SNC, analysts are sitting on their hands at this point. In recent reports, analysts at CIBC World Markets, Scotia Capital and Raymond James, simply maintained their earlier outlooks, which are bullish.

On Monday, Raymond James analyst Frederic Bastien stuck to his “outperform” recommendation and $63 target, arguing that the upside from the deal is probably pretty far away.

“We don’t see it impacting our 2011 and 2012 estimates materially, or our target price for that matter, because we expect the global engineering giant to initially only recognize recurring-type service fees from existing CANDU customers,” he said in a note.

However, perhaps longer-term investors should see an upside here: “Investors should be pleased with the AECL deal, in our opinion, as the terms present SNC-Lavalin with limited downside risk and significant upside potential (albeit over at timeframe that stretches well beyond our forecast horizon),” the analyst said.

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