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Quebecor (Christinne Muschi/christinne muschi)
Quebecor (Christinne Muschi/christinne muschi)

Eye on Equities

With a 'key uncertainty' gone, big gains seen for Quebecor Add to ...

Quebecor Inc. posted weaker-than-expected results on Tuesday, but that hasn't dampened analyst enthusiasm about the company as it positions itself for growth in wireless.

While its core cable customer growth struggled in the fourth quarter, new wireless subscribers picked up, and analysts believe the French market makes Quebecor's cache of French media invaluable as the industry shifts more toward mobile video.

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Importantly, the costs incurred to ramp up its wireless operations were in line with Street expectations, and with that, "a key uncertainty has now been addressed," said Desjardins Securities Inc. analyst Maher Yaghi.

With the stock trading well below its 52-week high of $39.62, Mr. Yaghi argues it offers "a significant potential return" and "an opportunity to buy an undervalued company with improving cash flow and profitability metrics in 2011 and 2012."

He says Quebecor trades at an enterprise value of only 5.2 times the consensus estimate for 2012 earnings before interest, taxes, depreciation and amortization. That compares with a peer group average of 5.8 to 6.0 times.

"We do not believe the company deserves to trade at such a significant discount given its fundamentals," he said. "While Quebecor maintains more aggressive balance sheet leverage than its peers, we look favourably on its decision to invest in wireless, which should provide the next leg of growth for the company."

He does not expect a dividend increase in the short term, however, believing the company will opt instead for debt reduction.

Upside: Mr. Yaghi upgraded the stock to "buy-average risk" and maintained a $39.50 price target.

CIBC World Markets Inc. analyst Robert Bek maintained a "sector outperformer" rating and $41 price target. Even more upbeat on the stock is Canaccord Genuity analyst Dvai Ghose, who maintained a "buy" rating and $45 price target.

IBM provided a deeper dive into some of its business initiatives during an investor briefing this week, giving shareholders "further comfort that the company continues to invest and execute on its strategy," said Canaccord Genuity analyst Eyal Ofir. IBM aims to nearly double earnings per share to $20 by 2015, with emerging markets providing an increasing proportion of revenues.

Upside: Mr. Ofir raised his price target by $10 to $180 (U.S.) and maintained a "buy" rating.

Given Uranium One Inc.'s size and relatively strong balance sheet, Canaccord Genuity analyst Orest Wowkodaw said he feels a "speculative" rating is no warranted. He upgraded the stock to a "buy," supported "by the company's compelling growth platform, low operating cost profile, and relatively attractive valuation."

Upside: Mr. Wowkodaw raised his target price by 75 cents to $7.25.

Aastra Technologies Ltd. , a leading vendor in the mature enterprise telephony business, should see strong near-term financial performance because of easy year-over-year comparables and multi-year highs in business confidence and hiring trends in key markets such as Germany, said TD Newcrest analyst Scott Penner. He expects to see organic growth of 3 per cent this year following declines in the past three years, and anticipates a dividend hike barring any large acquisitions.

Upside: Mr. Penner upgraded the stock to a "buy" from "hold" and raised his price target by $6 to $32.

Despite a record $1.23-billion in backlog work in the fourth quarter, Bird Construction Inc. remains cautious on 2011. The company expects to see tighter government spending and isn't forecasting a rebound in oil sands activity until 2012, keeping margins under pressure, noted CIBC World Markets Inc. analyst Paul Lechem.

Downside: Mr. Lechem downgraded Bird to "sector performer" from "sector outperformer" but raised his price target by $2 to $40.

PHX Energy Services Corp. reported a weak fourth-quarter, with cash flow per share of 22 cents nearly half of what was expected by CIBC World Markets Inc. analyst Jeff Fetterly. Weak operational results in the U.S. were exacerbated by lower gross margins and expenses. While net debt levels will go up later this year, leverage ratios should remain conservative, he added.

Downside: Mr. Fetterly downgraded the stock to "sector performer" and cut his price target by $1.50 to $15.50.

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