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(FRED CHARTRAND)
(FRED CHARTRAND)

Eye on Equities

RBC turns colder on uranium, downgrades Paladin Add to ...

RBC Dominion Securities Inc. is turning more bearish in its outlook for uranium as the hit to demand from the Japanese nuclear crisis becomes more clear. But it continues to believe that investors in the sector with a long-term view - and a lot of patience - will be rewarded.

The spot price for the commodity has dropped to about $56 (U.S.) per pound from its February, 2011, high of $73, just before the Japanese earthquake.

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RBC, which had stayed relatively upbeat on the uranium sector after the crisis, this week lowered its average price forecast for 2011 to $60 from $69. And it didn't stop there. In 2012, it sees an average price of $65, down from $77.50, and for 2013 it slashed its forecast by $10 to $70.

Notably, RBC left its forecasts untouched for 2014 and 2015, still expecting an average price of $80 in both years.

"Based on our forecasts of available uranium supplies, we do not think that there is sufficient uranium to cover the needs of 2014 to 2020," RBC said in a research note. It expects the market to start showing some initial signs of a recovery some time in the next 12 to 18 months, when utilities are likely to begin to see increasingly tight supplies for long-term contracts.

RBC analyst Adam Schatzker sees there being at least one supply-side casualty of the lower uranium prices: Paladin Energy Ltd.'s stage four expansion at its Langer Heinrich project in Namibia.

He said the project's economics are "questionable" at prevailing prices. Eliminating the expansion from his model shaved off 40 cents per share from his estimated net asset value for the company.

Downside: Mr. Schatzker downgraded Paladin to "sector perform" from "outperform" and reduced his price target to $3.25 from $4.50.

"In our view, Paladin remains a quality company with unparalleled uranium mine development expertise. It is the only large-scale producer that does not have a dominant shareholder or restrictive ownership policy," and could therefore could be subject to a takeover, he wrote.

"However, Paladin continues to struggle to attain positive earnings per share and we think that shareholders will need to see sustainable production and cash costs at both Langer Heinrich and Kayelekera (in Malawi) before they are willing to ascribe higher multiples to Paladin's shares."

Related: Uranium producers continue to slide

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Cabot Oil & Gas Corp. is achieving significantly higher-than-expected natural gas output from its Marcellus shale assets in Pennsylvania, noted Canaccord Genuity analyst John Gerdes. He raised his production growth forecasts for this year and next after the company disclosed clear infrastructure plans and more "exceptional" drilling results. "Recent results support our view that Cabot's 200,000 net acre position in Susquehanna Country, Pa., is the most capital productive gas asset in North America," he said.

Upside: Mr. Gerdes upgraded the stock to a "buy" and raised his price target 47 per cent to $85.

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Saputo Inc. shares have risen 17 per cent year-to-date - and 150 per cent since early 2009 - prompting a downgrade by TD Newcrest analyst Michael Van Aelst. The company's fourth-quarter results showed big gains in U.S. profits, but income from Canadian dairy and grocery divisions was disappointing, he said.

Downside: Mr. Van Aelst, who maintained a $49 price target, now rates the stock a "hold" and recommends buying only if Saputo falls closer to $43.

Related: Saputo's fourth-quarter profit rises despite writedown

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Versant Partners analyst Neil Linsdell has upgraded food and general merchandise retailer North West Co. to a "buy" because of a recent dip in its share price. Its core stores in northern Canada and Alaska have been doing well and the Street is expecting earnings per share of 28 cents when the company releases first-quarter results on Tuesday, he noted.

Upside: Mr. Linsdell maintained a 12-month price target of $20.

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The recent selloff in NCI Building Systems , which manufactures metals products for the building industry, is unwarranted, argued Canaccord Genuity analyst Eric Prouty. "Stronger-than-expected fiscal second-quarter results and a positive outlook from management help reinforce our thesis that the non-residential construction industry, while still facing economic headwinds, is on the mend," he said.

Upside: Mr. Prouty reiterated his "buy-best idea" rating and $17.50 price target.

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The Biomedical Advanced Research and Development Authority will exercise options under its botulism antitoxin supply contract with Cangene Corp. . While this will generate an extra $61-million in additional revenues for Cangene over the next three to four years, it also will push out the delivery schedule under the existing contract to 2018, noted TD Newcrest analyst Lennox Gibbs.

Downside: Mr. Gibbs cut his 12-month price target by $1 to $2 and maintained a "hold" rating.

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