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Shaw's main office building in Calgary (TODD KOROL/Todd Korol/Reuters)
Shaw's main office building in Calgary (TODD KOROL/Todd Korol/Reuters)

Eye on Equities

TD upgrades Shaw to a top pick Add to ...

TD Newcrest has upgraded Shaw Communications Inc. to its highest recommendation, believing that its earnings report on June 29 will be the catalyst for a turnaround in investor sentiment.

Analyst Vince Valentini’s decision to move the stock to TD’s “action list buy” rating (it was previously rated as a “buy”) is linked to his expectations that cable operations will see improved growth in earnings before interest, taxes, depreciation and amortization in its fiscal third-quarter results later this month.

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Shaw hasn’t been a winning hand for most investors recently, underperforming peers over the past six-, 18- and 30-month periods.

Normally, TD looks for a return of at least 30 per cent before a stock makes its highest rating. Mr. Valentini is looking for a return just shy of that, noting that the stock has remained resilient over $20 for several weeks now, aided by a 4.5 per cent dividend yield. “We could miss our entry point if we wait for the Q3 results,” Mr. Valentini explains.

He believes the Street is being too conservative in forecasting the company’s 2012 cable EBITDA, underestimating the impact of rate increases that started in April, cost reductions, and the expiry of aggressive promotional pricing. He sees 7 per cent year-over-year growth in the third quarter, climbing to 12 per cent in the fourth quarter.

Upside: Mr. Valentini maintained a 12-month price target on Shaw of $25.

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EnCana Corp. shares took a hit Tuesday after its $5.4-billion joint venture partnership with China’s largest oil and gas company fell through.

UBS Securities Canada Inc. analyst George Toriola reduced his price target $2.00 “to reflect the collapse of this transaction,” but added that “the company’s portfolio of established and emerging unconventional plays provide a long-term source for growth.”

Downside: Mr. Toriola maintained a “neutral” rating on Encana stock, but cut his 12-month price target to $33.00 (U.S.) from $35.00.

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Canaccord Genuity analyst Nicholas Campbell maintained a “speculative buy” recommendation on Orezone Gold Corp. after the company released a positive preliminary economic assessment on its Bombore gold project in Burkina Faso. Orezone is completing a 170,000-metre drill program that Mr. Campbell expects will expand the current resource to more than 5 million ounces of gold.

Upside: He cut his price target by 75 cents to $6.75 to reflect new scenarios for development of the mine, including a carbon-in-leach operation.

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Inter Pipeline Fund is acquiring petroleum storage facilities along a major petroleum trade route in the Danish Straits of northern Europe for about $500-million (Canadian). The assets should increase annual distributable cash flow by 10 cents per unit, underpinned by contractual arrangements that will diversify the fund’s profile, commented Canaccord Genuity analyst Juan Plessis.

Downside: Mr. Plessis raised his price target by $1 to $16.

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Mid-tier precious metal producer New Gold Inc. plans to increase both drilling and its exploration budget at the recently bought Blackwater project in central British Columbia.

The project is “likely to deliver positive news flow for NGD,” commented UBS analyst Dan Rollins, who believes the company is “attractively valued relative to historical levels.”

Although Mr. Rollins said “New Gold has a higher level of legal risk given the legal challenges surrounding the status of the Environmental Authorization of the company’s Cerro San Pedro mine in Mexico,” he expects New Gold will overcome these legal obstacles.

Upside: Mr. Rollins upgraded New Gold to “buy from “neutral,” but kept his 12-month price target at $12 (U.S.)

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