SNC-Lavalin Group Inc. moved higher on Tuesday, after the engineering company announced that it had won a $650-million contract to help build a froth treatment plant in the Fort McMurray region in Alberta, marking a significant foray into the Canadian oil sands.
“We believe that the market was not expecting this announcement,” said Pierre Lacroix, an analyst at Desjardins Securities, in a note. He maintained a “top pick” recommendation on the stock, along with a price target of $64.
The shares had been hit hard earlier this year, when the combination of a rough global economy and government spending cutbacks sent the stock sliding about 30 per cent between July and October. Throughout, the 13 analysts who follow SNC-Lavalin have remained upbeat on the stock, with all recommending it as a "buy" today.
Mr. Lacroix argues that the new oil sands contract builds on recent momentum within the company and will help reverse a recent downtrend in the company’s backlog.
“We believe this oilsands contract will also show investors that SNC can be competitive in the heavy oilsands region, especially after the company failed to obtain work on the Husky Sunrise project last year,” he said.
The shares have bounced an impressive 29 per cent from their October lows, but are still down about 13 per cent for the year.