In an otherwise disappointing second quarter for Canada's big banks, Bank of Nova Scotia was a notable exception, thanks largely to strong performance internationally. Analysts rewarded it today with a number of price target hikes.
Scotiabank reported core cash earnings per share of $1.12, up 8 per cent from a year ago and 3 cents better than the consensus forecast. Like the other Canadian banks, trading revenue was soft and North American margins deteriorated. But its greater exposure to international markets set it apart.
"While earnings quality was less than ideal, the earnings beat was a rare sighting in this bank reporting season, and so should be viewed positively," said CIBC World Markets Inc. analyst Robert Sedran in raising his price target by $1 to $64.
TD Newcrest analyst Jason Bilodeau raised his 12-month price target by $1 to $68, commenting that "we expect strong return on equity and above-average growth to support good returns."
Canaccord Genuity analyst Mario Mendonca also raised his price target to $68, up $2, noting that over the last five years, the bank's better earnings stability and momentum has earned it an average premium of 6 per cent against its peers. That's about where it sits today.
Desjardins Securities Inc. analyst Michael Goldberg raised his price target by $2.50 to $66.50 and expects dividend growth to continue through the rest of 2011 and in 2012. "With profitability in Canadian banking coming under pressure, we see this quarter as demonstrating one of Scotia's most important investment attributes - how its diversification reduces vulnerability and provides other sources of growth," he commented.
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Inmet Mining Corp. could become a takeover target if its recently discovered Cobre Panama project continues to expand in scope, said TD Newcrest analyst Greg Barnes. Inmet this week released results from 12 new drill holes, with one showing higher copper and gold grades than the previous best intercept reported in March.
"It is looking that Balboa could justify an expansion of the current planned operation relatively quickly after production commences in 2016/17 and, therefore, presents further upside for the project," Mr. Barnes said in a research note. Inmet is looking for a partner to take a 20 to 40 per cent stake in the $5.2-billion (U.S.) project to share in financial and development risks.
Upside: Mr. Barnes raised his price target by $5 (Canadian) to $93 and reiterated a "buy" rating.
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Reitmans (Canada) Ltd. had a "very disappointing" first quarter, as bad weather and a weak retail environment reduced sales and led to increased promotional activity, hurting margins, noted Versant Partners' analyst Neil Linsdell. "Although the balance sheet, margins and long-term prospects of the company remain good, there continues to be pressure on consumer spending and a weak start to the second quarter could cause investors to be more cautious in the short term," he said.
Downside: Mr. Linsdell cut his price target by $3 to $19 and downgraded the stock to "neutral" from "buy."
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Smoke from forest fires has impeded progress on Canadian Natural Resources Ltd.'s Horizon oil sands project to the point where workers are no longer able to access the site. But the company hopes to remobilize the work force by this Saturday and there has been no damage to its facilities, noted TD Newcrest analyst Menno Hulshof.
Downside: Mr. Hulshof cuts his price target by $1 to $53 to reflect modest revisions to 2011 production estimates.
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A recent marketing trip with Peyto Exploration & Development Corp. has left Canaccord Genuity analyst Kyle Preston with a more positive view on the oil and gas firm. He's now more confident it will be able to sustain production growth, expecting record output of 35,000 barrels of oil equivalent reached a few weeks ago to be exceeded by the end of the year.
Upside: Mr. Preston raised his price target by $3 to $24 and maintained a "buy" rating.
Darcy Keith