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Suncor's head office in Calgary. (TODD KOROL)
Suncor's head office in Calgary. (TODD KOROL)

Eye on Equities

Suncor's solid operating performance overlooked: RBC Add to ...

Suncor Energy Inc. shares are still a long way from the 52-week highs above $45 they were trading at last March, even after reporting $1.287-billion in third-quarter earnings last week.

RBC Dominion Securities Inc. analyst Greg Pardy thinks investors may be overlooking the momentum the company is enjoying when it comes to improving its operating performance.

“As one of the largest and most liquid energy producers on the board, Suncor’s relative valuation compression in recent months has reflected a multitude of market concerns ranging from an oil price collapse to oil sands cost inflation,” Mr. Pardy said in a research note. “While these are legitimate considerations, Suncor’s solid operating performance over the course of 2011 has largely gone unnoticed.”

Suncor is slated to release its 2012 budget Tuesday, although it has already signalled its capital program for next year would be around $7.5-billion - a more conservative figure than some had expected. Using that number as a guide, Mr. Pardy believes Suncor’s free cash flow could come in at $2.9-billion. While the company has stated its priorities for cash flow are to fund its base business and growth initiatives, he said it’s possible Suncor could also increase its dividend next year.

“Suncor remains our favourite stock, given its upstream production visibility, strong balance sheet and massive oil sands resources,” he said.

Upside: RBC reaffirmed its $49 price target and “outperform” rating.

Related: Suncor conservative with its spending

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Air Canada is navigating industry turbulence quite well but the stock is still too risky to recommend, said Raymond James Ltd. analyst Ben Cherniavsky. The company posted growth in its third-quarter revenue and has made progress on cutting costs and reducing debt. But “there are still too many risks and challenges on the horizon to warrant anything but a neutral rating on the stock right now,” Mr. Cherniavsky commented, including slowing global GDP growth, stubbornly high fuel prices and ongoing labour unrest.

Downside: Mr. Cherniavsky cut his price target to $1.75 from $3.

Related: Arbitrator rules for Air Canada management, union says

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RBC Dominion Securities Inc. analyst Drew McReynolds is losing patience with Yellow Media Inc. , which last week reported a third-quarter drop in earnings before interest, taxes, depreciation and amortization to $166-million from $193.2-million a year ago. He cut his price target to 40 cents from 75 cents, reflecting more conservative revenue and margin assumptions.

“Until better EBITDA visibility emerges .... we believe the risk profile of the stock will remain elevated,” he said in a research note.

Mr. McReynolds, who rates the stock as “underperform,” is still more optimistic about Yellow Media’s future than his counterparts at CIBC World Markets Inc. and Canaccord Genuity. Related contentAnalysts at those two research houses Friday reaffirmed their price targets of zero.

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Miranda Technologies Inc. , which manufactures hardware and software for television, reported another strong quarter with revenue rising 29 per cent from a year earlier. “In the face of single-digit industry growth, MT has grown its product lines to the point it needs to be thought of as a growth company in the broadcast industry,” commented CIBC World Markets Inc. analyst Todd Coupland.

Upside: Mr. Coupland upgraded Miranda to “sector outperformer” and raised his price target by $4 to $12.

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Flint Energy Services Ltd. reported “excellent” third-quarter results, with higher margins across all segments, noted CIBC World Markets Inc. analyst Jeff Fetterly. He expects the company will generate more than $50-million in free cash flow through 2012 and “would not be surprised” to see Flint implement a dividend next year.

Upside: Mr. Fetterly upgraded Flint to a “sector outperformer” and jacked up his price target by $2.50 to $18.

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Raymond James Ltd. analyst Steven Li upgraded DragonWave Inc. to “outperform” after the company agreed to acquire Nokia Siemens Networks’ microwave transport business. He believes the deal will give DragonWave “a shot in the arm,” boosting earnings per share while securing an entire microwave product portfolio that will geographically diversify its revenue base.

Upside: Mr. Li increased his target price by $2 to $6.

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