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National Bank slams Aecon Group for bond issue timing Add to ...

Aecon Group Inc. is facing a bitter backlash from some of its investors after announcing a brutal earnings miss Tuesday that came right on the heels of a new debt issue.

Canada's largest publicly traded general contractor reported adjusted third-quarter earnings per share of 14 cents, missing consensus estimates of 38 cents, primarily because of weakness in industrial work and margins. Reaction wasn't kind: the company's shares plunged nearly 10 per cent Wednesday.

The debt issue, announced on Sept. 20 and for $92-million of convertible debentures carrying a coupon rate of 6.25 per cent, closed on Oct. 8 - several days after the quarter's end. Management, therefore, must have had full knowledge of the magnitude of the earnings miss at the time of the issue, said National Bank Financial analyst Benoit Caron.

If the debenture buyers had known ahead of time that the earnings miss was coming, it's logical to conclude that they would have asked for a higher coupon rate or a different conversion price.

"While not illegal, we do not appreciate this kind of corporate behaviour. In our play-book, this is worth 10 minutes in the penalty box and a game misconduct," he said in the note.

Mr. Caron said many institutional and individual investors National Bank talked to were infuriated by the move, and management's credibility has taken a blow.

While the stock price is likely to largely drift sideways until earnings momentum improves, Mr. Caron said he's not going to throw in the towel. Aecon has a surging backlog of orders, the stock underperformed all its peers since the onset of the recession, and future returns are likely to easily beat those of the past three years, he suggests. Mr. Caron reiterated his "outperform" rating, but lowered his price target to $15.50 per share from $18.

Other analysts appeared less optimistic. While stating he did like the company's long-term prospects, TD Newcrest analyst Michael Tupholme downgraded the stock to a "hold" from an "action list buy" and cut his price target to $12.50 from $16.

CIBC World Markets Inc. analyst Paul Lechem downgraded the stock to "sector performer" from "sector outperformer" and cut his target to $12 from $16. "We expect earnings leverage over time from improvements in the industrial, buildings and mining segments, but expect only modest upside over the next six to 12 months," Mr. Lechem said.

WestJet Airlines Ltd.'s is gaining altitude, with third-quarter earnings beating some forecasts and the airline planning to buy back shares and reward stockholders with a new quarterly dividend. The flight path ahead looks smooth, said Canaccord Genuity analyst David Tyerman, as demand for air travel recovers, costs are contained and seat prices go up.

Upside: Mr. Tyerman hiked his price target by $1 to $17 and reiterated his "buy" recommendation.



Agrium Inc. should see improved earnings in coming months, thanks to strong agriculture fundamentals and the expected closing in December of the acquisition of Australia's AWB Ltd., said Canaccord Genuity analyst Keith Carpenter. While third-quarter adjusted earnings came in below expectations, the miss is mainly a timing issue and will be reversed this quarter based on the company's better-than-expected guidance, he said.

Upside: Mr. Carpenter hiked his price target by $8 (U.S.) to $105 a share and reiterated his "buy" rating.

Despite third-quarter earnings of $1.06 (U.S.) that beat expectations, Newmont Mining Corp. is faced with flat production until 2013, rising costs due to declining ore grades, and operational challenges at its Boddington mine in Australia, said RBC Dominion Securities Inc. analyst Stephen Walker.

Downside: Mr. Walker cut his rating to "underperform" from "sector perform" and slashed his price target to $63 from $72.



Transcontinental Inc. shares have gained 24 per cent over the past year, outpacing the 17 per cent rise in the S&P/TSX index, noted RBC Dominion Securities Inc. analyst Drew McReynolds. While fundamentals for the stock still look positive and there's likely more upside, greater value resides right now with peers Torstar Corp. and Glacier Media Inc., and Quad/Graphics Inc.

Downgrade: Mr. McReynolds downgraded the stock to "sector perform" from "outperform" and maintained his $19 per share price target.

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