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Vehicles travelling eastbound on the 407 Express Toll Route (ETR) just before the exit for the 400 Highway. (Louie Palu/The Globe and Mail)
Vehicles travelling eastbound on the 407 Express Toll Route (ETR) just before the exit for the 400 Highway. (Louie Palu/The Globe and Mail)

Eye on Equities

Highway 407 contract no panacea for SNC-Lavalin shares: NBF Add to ...

Reports that a consortium led by SNC-Lavalin Group Inc. has been selected as the preferred bidder for Ontario’s Highway 407 east extension do little to change the stock’s outlook, according to National Bank Financial analyst Trevor Johnson.

The Ontario government is expected to release details in coming months regarding the project, which is estimated to total $1-billion or more and involve multiple phases.

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SNC-Lavalin’s proposal would be tough to beat, explains Mr. Johnson, as the company was involved in the construction of the existing 407, currently performs operating and maintenance on the highway and owns 17 per cent through direct investment worth approximately $1.5-billion.

Two U.K.-based trade publications last week reported SNC-Lavalin was chosen. If confirmed, it would add to SNC-Lavalin’s presence in Ontario. It recently announced a contract to refurbish the Darlington nuclear station (worth approximately $600-million), and another providing project management, engineering, procurement and construction management for the $2-billion emission reduction project for Vale in Sudbury, Ont.

However, Mr. Johnson says the company’s share price is range bound until a management update expected before March 30, so any positive effects from new contract wins be muted.

The company recently took a $23-million charge related to its operations in Libya, and is investigating $35-million in mysterious payments.

Upside: Mr. Johnson maintained his “sector perform” rating and $45 (Canadian) price target.

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Shipments of Gildan Activewear Inc. apparel from wholesalers to U.S. screen printers rose a better-than-expected 24.2 per cent in February, while industry shipments increased 16.2 per cent, according to data cited by National Bank Financial analyst Vishal Shreedhar. “This is significant because GIL’s Q2/fiscal 2012 guidance assumes wholesale industry growth of negative 5 per cent,” Mr. Shreedhar said as he raised his fiscal 2012 and 2013 earnings estimates.

Upside: He raised his price target by $4 to $32 and reiterated his “outperform” rating.

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The odds are low that a superior bid will materialize for Neo Material Technologies Inc. in the wake of Molycorp Inc.’s $1.3-billion friendly takeover bid last week, said Raymond James Ltd. analyst Frederic Bastien. He believes the deal is fair, given its enterprise value/earnings before interest, taxes, depreciation and amortization multiple of 7.1 times his forward estimates - greater than the 3.6 to 5.2 times range the stock has historically traded within.

Downside: Mr. Bastien downgraded the stock to “market perform” from “outperform” and cut his price target to $11.30 from $13.50.

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Desjardins Securities Inc. analyst Jeremy Rosenfield is applauding Algonquin Power & Utilities Corp.’s purchase of a stake in four U.S. winds farms from Spain’s Gamesa Corp Tecnologica SA. He expects the deal will generate a 10 to 11 per cent return on cash invested and open the door to long-term growth opportunities with a world-class wind turbine supplier.

Upside: Mr. Rosenfield upgraded Algonquin to a “top pick” from “buy” and raised his price target by 50 cents to $7.75.

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With an attractive mix of gas infrastructure, power infrastructure, and utility assets, AltaGas Ltd. is a unique investment opportunity among the energy infrastructure players, according to CIBC World Markets analyst David Noseworthy. Initiating coverage on AltaGas, Mr. Noseworthy is expecting significant and balanced growth in all three segments. He says the company has improved its risk profile by focusing on growth opportunities and acquisitions with stable, long-term contracted cash flows.

Upside: Mr. Noseworthy rates the stock a "sector outperformer" with a price target of $36.



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