With Target’s arrival just around the corner and Wal-Mart ramping up its grocery offerings, Accountability Research analyst Kevin Chu warns Loblaw Cos. Ltd. is in precarious shape. The company admitted in its latest analyst conference call that it is already losing market share at a time when competition promises to only get more fierce.
Mr. Chu downgraded Loblaw to a “sell” today, believing that its current trading price -- at the low end of its recent price-to-earnings range -- “is more than justified.” He cites the company’s weak sales growth, inability to take full advantage of industry-wide rise in food prices, and the recent revelations of market share losses.
The company’s weak first quarter was key to his more bearish stance. Adjusted earnings before interest, taxes, depreciation and amortization dropped by about 3.5 per cent in the quarter, as Loblaw incurred additional costs for its new IT system and new customer initiatives that are aimed at making price points and products more attractive for customers. “The market had partially anticipated weaker margins in 2012 due to strategic initiative costs, but the 35 basis points decline in Q1/12 was a sharp contrast to the 30-40 basis points annual increases in 2010 and 2011,” he notes.
“The strategic initiatives are testing the patience of the market given the immediate margin pressures but delayed potential benefits,” he said.
The company saw negative same-store sales growth in the quarter. While that is partly due to one less operating day in the period than a year ago, Mr. Chu notes the company has not had an annual same-store sale growth rate above 1 per cent since 2009.
Downside: Mr. Chu has a $30 price target on the stock.
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Bombardier Inc.’s first-quarter results were less than rosy, with earnings per share from continuing operations of 8 cents missing Street estimates, and revenues also coming up short. But Raymond James analyst Steve Hansen thinks the stock is just too cheap right now for investors to ignore; he upgraded it to “outperform” from “market perform.”
He notes the outlook for the company is showing some promise, with backlog of work growing 2.4 per cent over the three-month period, thanks to strong orders at the aerospace division.
“Despite continued challenges facing BBD (economic uncertainty, vulnerable line rates, C Series timeline pressures, $2-billion capital expenditure program), we are encouraged by management’s guidance reaffirmation and positive outlook, which has improved notably versus last quarter,” Mr. Hansen said in a note.
“Trading at a depressed valuation of only 9.5 times our 2012 estimated EPS estimate (vs. peers at 11.1x), we believe this to be an opportune entry point for long-term, value-focused investors.”
Upside: Mr. Hansen maintained a $5 (Canadian) price target.
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Louisiana-Pacific Corp. shares “are discounting an overly conservative” outlook on oriented strand board prices and on the housing recovery, said RBC Dominion Securities analyst Paul C. Quinn, who upgraded the wood product manufacturer producer to “outperform.” The company posted a strong first-quarter and Mr. Quinn sees the momentum continuing given the recovery in the U.S. housing market.
Upside: Mr. Quinn raised his price target by $2 to $12. (U.S.)
Alliance Grain Traders Inc. posted weak first-quarter results as demand for pulse crops deteriorated. While management continues to forecast a bounce back in demand in the second half of this year, Canaccord Genuity analyst Keith Carpenter notes that so far there has been no indication of that. “2012 should remain constrained from allowing AGT to fully benefit from its processing capabilities,” he said.
Downside: Mr. Carpenter cut his price target to $13.50 from $17 and maintained a “hold” rating.
National Bank Financial analyst Paolo Lostritto believes Claude Resources Inc.’s balance sheet could come under pressure given the gold miner burned through more cash than expected in the first quarter, which missed the mark due to lower production. A strong second quarter is needed to offset the concerns, he notes, and for now, the company may have to draw more from its line of credit for its operations.
Upside: Mr. Lostritto cut his price target to $1.80 from $2.10 but maintained an “outperform” rating.
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