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Freight trains in a rail yard in Calgary (JEFF MCINTOSH/JEFF MCINTOSH/CP)
Freight trains in a rail yard in Calgary (JEFF MCINTOSH/JEFF MCINTOSH/CP)

Eye on Equities

Desjardins sees CP Rail getting back on track Add to ...

In the wake of Canadian Pacific Railway Ltd.'s investor day earlier this week, Desjardins Securities Inc. analyst Benoit Poirier has lowered his second-quarter earnings estimates to take into account "weaker-than-expected volume growth" and increased costs from poor weather.

Assuming no meaningful improvement in volumes before the end of the second quarter, he estimates adjusted earnings per share in the three-month period of 70 cents, down from his earlier estimate of $1.03, and 2011 adjusted EPS of $3.46, down from $3.67.

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Nonetheless, Mr. Poirier reaffirmed his "buy-average risk" recommendation on CP and $72 target, asserting "the current share price provides a good entry point."

He noted that as the negative impact of adverse weather and flooding conditions dissipates, management is confident that volumes will recover in the second half of the year as the railway enters what is traditionally its strongest period.

He continues to recommend CP over rival Canadian National Railway

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Dollarama Inc. reported better-than-expected first-quarter results, in spite of a 2.8 per cent decline in store traffic from a year earlier, noted Kathleen Wong of Veritas Investment Research.

She sees the competitive landscape intensifying for Dollarama with the entry of Target Corp., Dollar Tree Inc. and Big Lots Inc. into Canada. They will be "competing for prime real estate of roughly 10,000 square feet," and this might lead to higher rent expenses, said Ms. Wong.

Downside: Ms. Wong is keeping a "sell" rating on the stock, which she estimates has an intrinsic value of $30. "Although Dollarama is a strong cash flow generator, the current valuation at 9 times forward EV/EBITDA looks quite rich compared to its peers in the U.S. at 7 times to 8 times," she added.

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Amdocs has agreed to acquire Bridgewater Systems Corp. for $211-million in cash, a 30 per cent premium to the previous close, noted Scott Penner of TD Newcrest. Mr. Penner believes the probability of a competitive bid remains low at this point.

Downside: Mr. Penner issued a "tender" recommendation and lowered his target price to $8.20 from $9.

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Todd Coupland, analyst with CIBC World Markets, remains optimistic on Research In Motion Ltd. despite Thursday's miserable quarterly financial report and outlook.

"While RIM confirmed virtually all our concerns, we believe the worst is now out and shares can be bought," he said in a research note.

Upside: He is maintaining a "sector outperformer" rating, believing the price will eventually bounce back. His price target was cut $10 to $65 (U.S.)

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After Surge Energy Inc. reported first-quarter results above estimates, Desjardins Securities Inc. analyst Allan Stepa commented that, with its "strong" leadership, Surge is "well positioned to execute its 2011 capital program and aggressively pursue its growing drilling inventory."



Among the reasons he cited for optimism about share price gains to come at the light oil production company: its increased drilling inventory and recent drilling success.



Upside: Mr. Stepa's price target on the stock is now $11.50, up from $11.00. He maintained a "buy-average risk" rating.

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