Inside the Market's roundup of some of today's key analyst actions
UBS Securities Canada has elevated Teck Resources Ltd. to its “key call” list, a small handful of stocks it considers its highest conviction investment ideas.
Analyst Brian MacArthur believes the mining company will outperform peers thanks to its expected production growth and high cash levels, which currently stand at $3.57-billion (Canadian). That dwarfs its balance sheet debt of just over $323-million (U.S.).
“We believe the company is well positioned to benefit from both production growth and potential future increases in the price of metallurgical coal, copper, zinc and oil,” said analyst Brian MacArthur.
He notes that Teck has low-cost growth potential in coal at its Elk Valley operations and through the restart of the Quintette mine. Both are located in British Columbia.
In the copper arena, growth should come from the phase 2 of the Quebrada Blanca project and the Relincho project. Both are in Chile. Teck also has Alberta oil sands exposure through its 20 per cent ownership in Fort Hills operations and its 100 per cent stake in the Frontier project.
Other UBS key calls in Canada are: Bank of Nova Scotia, MEG Energy Corp., Magna International Inc., Quebecor Inc., and Suncor Energy Inc.
Upside: UBS has a $40 price target and a “buy” rating on Teck.
RBC Dominion Securities has downgraded CGI Group Inc. to “sector perform” from “outperform,” commenting that the benefits from its Logica acquisition is now harder to time.
“Near-term earnings per share visibility appears to have declined while expectations may remain high,” said RBC analyst Paul Treiber. Meanwhile, “Logica headline risks are likely to overshadow CGI’s core business strengths, both of which may restrain CGI’s valuation multiple.”
The Montreal-based company swung to a loss in the fourth quarter as it booked unexpectedly high acquisition and integration charges related to the $2.7-billion purchase of Anglo-Dutch IT group Logica, which closed in August.
While analysts were quick to call the quarter “messy,” CGI said it is nonetheless on track to achieve an accretion rate of 25 per cent to 30 per cent in 2013 from the Logica acquisition.
Downside: Mr. Treiber cut his price target by $4 to $30.
TransAlta Corp. held its annual investor day earlier this week in which it projected lower contracted power prices and significantly lower profitability expectations for its Centralia coal-fired plant in Washington state. “Nevertheless, the cash flow outlook is little changed, with lower Centralia profits backfilled by new production and more stable energy trading,” commented CIBC World Markets analyst Paul Lechem. He notes that cash flow still appears sufficient to support the dividend.
Upside: Mr. Lechem maintained a “sector performer” rating and trimmed his price target by $1 to $15.
Inmet Mining Corp., which has twice rejected takeover bids from First Quantum Minerals Ltd., is unlikely to receive offers from larger companies such as BHP Billiton or Rio Tinto, Desjardins Securities analyst John Hughes said.
“We believe the $70 bid made by First Quantum on November 25 reflected what management considered a reasonable offer from a valuation perspective. We estimate a 50 per cent probability that First Quantum will ‘go hostile’ with the $70 offer, although a non-friendly bid would be a precedent for the company,” he wrote in a research note.
“There are only a few mining companies with a large enough balance sheet to consider acquiring Inmet. In North America, this includes Teck Resources and Freeport-McMoRan,” he added.
Downside: Mr. Hughes lowered his rating on Inmet to “hold” from “buy” and has a $60.55 price target on the stock.
Raymond James analyst Gary Baschuk has downgraded Geologix Explorations Inc. to “market perform” from “outperform” due to the lack of successful exploration drill results and expected capital increases associated with the potential construction of the Tepal gold and copper project in Mexico.
“While the company is advancing on the development front ... we believe GIX needs to restart the exploration process with a new acquisition,” said Mr. Baschuk.
Downside: Mr. Baschuk cut his price target to 40 cents from $1.10.
Canaccord Genuity has added InterRent REIT to its “focus list,” which are the research firm’s favourite investment ideas. “InterRent REIT has multiple avenues of growing net operating income - a high quality source of cash flow,” commented analyst Jenny Ma. She applauded the REIT for its money-making acquisitions, occupancy gains, operating efficiencies and rental rate increases.
Upside: Ms. Ma maintained a “buy” rating and $6.50 price target.
Goldman Sachs upgraded Research In Motion Ltd. to a “buy” rating today and boosted its price target to $16 from $9 (U.S.). Michael Babad has more details here.
For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities