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Shopping Mall (HENG KONG CHEN/Getty Images/iStockphoto)
Shopping Mall (HENG KONG CHEN/Getty Images/iStockphoto)

Eye on Equities

Guess shares going cheap "on every metric," says analyst Add to ...

Owning stock in retailer Guess Inc. has fallen out of fashion - at least for today - with shares plunging more than 10 per cent after a disappointing earnings report and outlook last night.

But Jefferies analyst Randal Konik believes this is actually an ideal time for investors to load up on a stock he thinks is going cheap.

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The Los Angeles-based clothing designer and marketer reported earnings dropped 7 per cent in its latest quarter to about $96-million, as weaker sales growth in Europe and North America offset double-digit growth in Asia. For the fiscal year ending next February, the company forecast earnings per share of $2.50 to $2.65 and revenue between $2.74-billion and $2.78-billion. That was well below the $3.21 per share on revenue of $2.84-billion that analysts had predicted.

“Fourth quarter wasn't great, neither was the outlook. However the stock remains cheap, earnings expectations are now significantly lowered and we like the setup from here going forward,” Mr. Konik said in a research note.

“We remain buyers on any weakness of this truly global brand that has great long-term opportunities, a solid balance sheet and cash flows.”

Mr. Konik noted management had indicated that sales trends are improving in women’s fashions. And while southern European markets are shaky, he was encouraged to hear that growing markets in northern and eastern Europe are holding up much better.

The stock’s valuation, he believes, is extremely attractive right now.

“GES stock is cheap on every metric, ended 4Q with over $5 cash/share, 10 per cent cash flow yield, has 2 per cent dividend yield and no debt, which we like.”

Upside: Mr. Konik set a new price target of $50 (U.S.) based on the soft guidance, down $5, and reiterated his “buy” rating.

Related: U.S. shoppers open their wallets in February

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Transat A.T. Inc. reported fiscal first-quarter earnings well below consensus forecasts, as the air carrier was unable to pass on the 35 per cent rise in fuel costs to customers in light of fierce competition in sun destinations, noted Desjardins Securities Inc. analyst Benoit Poirier. But management has suggested fuel surcharges may cover the increase in fuel prices this summer as the company switches focus to the transatlantic market.

Upside: Mr. Poirier maintained a “hold” rating with a $7 target price.

Read more: Transat loss widens on high fuel costs

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Raymond James Ltd. analyst Gary Baschuk believes investors this week overly punished Batero Gold Corp. after it provided a technical report for its Quinchia project in Colombia that under-delivered on the expected total contained gold ounces. “We believe the low share price provides an opportunity to participate in a good exploration project in a highly endowed gold region,” he said.

Upside: Mr. Baschuk upgraded the stock to “outperform” from “market perform” and reiterated a $1.45 price target.

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Semafo Inc. has been one of the most consistent mining operators, meeting production and cost guidance for four consecutive years, commented CIBC World Markets Inc. analyst Cosmos Chiu. While higher costs continue to be a challenge, its key asset - Mana in Burkina Faso - should see some relief in the second half of 2013 when the gold mine is expected to be connected to the national power grid, he said.

Upside: Mr. Chiu cut his price target by $2 to $11, but maintained his “sector outperformer” rating.



Technical analysis:Semafo Inc. stuck in a long-term downtrend

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While Baytex Energy Corp. continues to deliver operationally, the recent widening in Canadian crude differentials relative to West Texas Intermediate will be a headwind in the near-term, said Raymond James Ltd. analyst Kristopher Zack. The company has hedges in place to offset some of this impact, but “we expect the uncertainty in the market to set a cautious tone,” he said.

Upside: Mr. Zack maintained a “market perform” rating and $54.50 (Canadian) price target.

Read more: Canadian crude discount squeezes oil patch

 
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