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(Graham Hughes)
(Graham Hughes)

Eye on Equities

Desjardins strips price target on Yellow Media to a penny Add to ...

Yellow Media Inc. shares are trading near all-time lows of 6 cents in the wake of the company's whopping $2.9-billion first-quarter loss disclosed Monday - but Desjardins Securities sees even further downside from here.

Analyst Maher Yaghi cut his price target today to just one penny, from 15 cents, effectively valuing the company at next to nothing.

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The company’s earnings report Monday provided little encouragement that things will turn around. The loss amounted to $5.61 a share, after taking a surprise $2.9-billion impairment charge. A year ago, the company posted a profit of 13 cents a share. Revenue fell to $289.1-million from $349.4-million a year earlier.

With more than $700-million in debt reportedly due by the end of 2013, Yellow Media will be hard pressed to come up with an alternate business plan and refinance debt.

“We believe the acceleration of the decline in revenue this quarter compared with fourth quarter 2011 is going to continue, given it was caused by both a reduction in online growth and an increase in the pace of decline of print revenue,” Mr. Yaghi said in a research note. He now expects revenues to decline 15 per cent year-over-year, instead of 9 per cent.

While the company continues to provide positive free cash flows, they will not be sufficient to repay debt maturing in 2013-14, he warns. “Hence, we expect debt holders to force the company to accept very onerous debt restructuring terms, which will likely leave no residual value to current equity holders,” Mr. Yaghi said. “We continue to recommend that shareholders sell any position they have in the stock, as we do not currently foresee any value left over in any upcoming debt restructuring scenarios.”

Others on the Street are also taking a highly cautious view. Of 12 analysts who cover Yellow Media, 11 rate it as a sell and one as a hold. The mean price target is 7 cents.

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Tim Hortons Inc. is expected to post earnings per share of 58 cents when it reports first-quarter results Wednesday, a dime higher than last year. But Canaccord Genuity analyst Derek Dley is cautious on where the coffee chain goes from here. “We remain of the view that Tim Hortons’ growth profile in Canada is becoming limited, given its already robust 80 per cent market share and increasing competition in the breakfast day part,” he said.

Downside: Mr. Dley raised his price target by $3 to $55 and maintained a “hold” rating.

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Lumina Copper Corp. has announced a “material” increase in mineral resources at its Taca Taca copper-gold-molybdenum project in Argentina, noted Canaccord Genuity analyst Wendell Zerb. But political risk in the nation has also increased, which makes takeover offers for mining assets there less likely, he said.

Upside: Mr. Zerb cut his price target to $19.55 from $21.50 and maintained a “speculative buy” rating.

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Ensign Energy Services Inc. enjoyed a strong start to 2012, with earnings beating Street expectations. But CIBC World Markets Inc. analyst Jeff Fetterly downgraded the stock to “sector performer” from “sector outperformer,” believing shares may no longer be undervalued relative to peers. “While we believe Ensign remains one of the more defensive North American contract drillers, in our view this is increasingly reflective in the company's valuation,” he said.

Upside: Mr. Fetterly maintained a $19 price target.

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Inmet Mining Corp. released “very solid” basic engineering results and financial plans for its 80 per cent owned Cobre Panama copper project. But the company did not secure a new partner for the $6.2-billion (U.S.) project, as some had been expecting. As a result, Desjardins Securities analyst John Hughes ramped down his targets on the company, given Inmet will inherit greater risks relating to project financial, permitting, construction and local politics.

Upside: Mr. Hughes cut his price target to $72.40 from $80.10 and reiterated a “buy” rating.

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