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Canadian Pacific Railway (Chuck Stoody/Chuck Stoody/Canadian Press)
Canadian Pacific Railway (Chuck Stoody/Chuck Stoody/Canadian Press)

Eye on Equities

Flood-related disruptions worsening at CP Rail, says RBC Add to ...

Mother Nature hasn't been kind this year to Canadian Pacific Railway Ltd. , which has had to endure a number of weather- and flood-related disruptions on its transportation network. And, according to RBC Dominion Securities Inc. analyst Walter Spracklin, things aren't getting much better as the dog days of summer arrive.

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Since CP's investor day on June 13, he estimates that network disruptions have only intensified. At that time, CP Rail projected that the financial impact of flooding on second-quarter results would be similar to the same three-month period of last year, when CP's mainline was shutdown for 11 days.

Mr. Spracklin doesn't see that happening. "We have been tracking CP's customer bulletins both before and after the investor day and we believe the conditions have now worsened both in the severity and longevity of track outages (in the second quarter) and now significantly exceed network outages experienced last year," he said.

CP's main North-South line in southern Saskatchewan and North Dakota, for instance, had been out of service due to flooding since June 20th. Other areas of the network have also experienced downtime in the second quarter, including several regions in the interior of British Columbia and in southwestern Manitoba.

He reduced his second-quarter earnings per share estimate by 10 cents to 70 cents. He also trimmed his third-quarter projections, believing the impact of disruptions will carry over into the summer months.

Upside: This could all add up to some short-term volatility in the stock, but Mr. Spracklin maintains a positive long-term view and still rates CP as an "outperform."

"We believe any share price weakness presents a buying opportunity, as long-term industry fundamentals remain strongly in CP's favour." Among the reasons why: robust demand for bulk commodities, expected cost savings from better productivity, and sustained price and volume improvements.

Mr. Spracklin maintained a $72 price target.

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Brookfield Asset Management has lent a helping hand to Armtec Infrastructure Inc. by providing it with a $125-million credit facility, noted Raymond James Ltd. analyst Frederic Bastien. Armtec will now be able to repay in full the lenders under its existing senior facility, giving the company "a new lease on life" and freeing up management time to tackle a number of operational difficulties, he said.

Upside: Mr. Bastien, who has a price target of $5 on Armtec, upgraded it to "outperform" from "market perform."

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Rainy River Resources Ltd. has released a new estimate on the size of its namesake project in northwestern Ontario, boosting measured and indicated resources to 4.4 million ounces of gold and 9.1 million ounces of silver. RBC Dominion Securities Inc. analyst Stephen Walker commented that the latest results are "positive developments towards completing a feasibility study and de-risking the project," but added that the increase in total resources was not huge.

Upside: Mr. Walker trimmed his price target by $1 to $14 but continues to rate the stock as an "outperform."

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Phil Skolnick of Canaccord Genuity downgraded SilverBirch Energy Corp. after the company released a new cost estimate for its Frontier and Equinox oil sands mining project. While he still views the company as a takeover candidate, cost inflation is increasingly becoming a headwind. "Until management feels the need to open up a data room, which could be at least a year from now, the stock is susceptible to oil sands macro risks," he said.

Downside: Mr. Skolnick now rates SilverBirch as a "hold" and cut his target price to $8.50 from $11.

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Empire Company Ltd. , owner of the Sobeys grocery chain, reported strong results in its core business in the fourth quarter, but its food retailing segment continues to experience intense competitive pressures in certain regions, noted Beacon Securities Ltd. analyst Philip Bassil. CIBC analyst Perry Caicco added that Target's impending entry, which will increase food retailing square footage in Canada, will put additional pressure on the company to increase productivity and lower costs.

Upside: Mr. Caicco raised his price target by $6 to $76 and Mr. Bassil raised his by $3 to $62.

 

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