Canaccord Genuity analyst David Tyerman has taken a knife to his forecasts over the next 18 months for Transat A.T. Inc. , as the travel firm grapples with fierce competitive pressures and hefty fuel costs.
The company reported disappointing second-quarter results Thursday, posting an adjusted loss per share of 2 cents. Mr. Tyerman was expecting a profit per share of 7 cents and the Street consensus was for a profit of 2 cents.
Transat faces difficulties in both the major travel destinations it serves: the sun routes in North America, where competition is particularly intense, and Europe, which is seeing lower than hoped for volumes because of unrest in northern Africa.
Management is expecting results in the second half of this year to fall short of last year's record levels, as a projected 15 per cent rise in capacity on key transatlantic routes will be more than offset by flat pricing and a projected 30 per cent rise in fuel costs, Mr. Tyerman notes.
"Transat results have been extremely volatile in recent years due to competition," Mr. Tyerman wrote in a research note today. "We have low confidence in our forecast because there continues to be high potential for adverse competitor actions."
He cut his fiscal 2011 and 2012 forecasts substantially "to model a materially lower margin recovery" and concedes his forecasts remain highly risky.
Downside: Mr. Tyerman downgraded the stock to a "hold" from a "buy" while slashing his 12-month price target to $11.25 from $18.25.
TD Newcrest analyst Tim James is a little more upbeat on the stock, slightly raising his target today to $14 as free cash flow in the second quarter came in above his expectations. But he also rates Transat as a "hold" and believes its valuation will remain depressed "until there is evidence that the fundamental outlook for the company is improving."
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Silvercorp Metals Inc. shares have been significantly underperforming its peers, falling about 45 per cent over the past two months compared with an average 28 per cent decline for the sector.
UBS analyst Chris Lichtenheldt calls this underperformance "excessive" and today upgraded the stock to a "buy" from "neutral."
He thinks some of the underperformance, particularly over the past week as the shares dropped 17 per cent, is due to general concerns about assets based in China. The company issued a press release Thursday, in which, among other things, it stated its assets have not been affected by recent power outages in the country. Mr. Lichtenheldt believes the press release will be reassuring for investors.
Upside: UBS has a $12.75 (U.S.) 12-month price target on Silvercorp, although that's down from an earlier target of $15.25.
Darcy Keith