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(Bombardier Handout)
(Bombardier Handout)

Eye on Equities

Investors too down on Bombardier's C-Series prospects: CIBC Add to ...

Judging by Bombardier Inc.’s share price, investors are being much too pessimistic on the future of its C-Series aircraft, argued CIBC World Markets analyst Michael Willemse.

According to his calculations, which assumes a valuation of $5.30 a share for Bombardier’s transportation and business jet operations, the market is implying a value of negative $2-billion, or $1.15 a share, for the new aircraft. That, he notes, “would suggest one of the biggest disasters in aviation history."

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By contrast, Mr. Willemse is assuming a C-Series valuation of positive $1.20 per share. He explains that the biggest risk for the C-Series is not an unexpected surge in capital costs to build the aircraft, but a design flaw that would require the scrapping of planes and an expensive redesign.

“A negative $2-billion ($1.15/share) cost over-run would likely imply the scrapping of [approximately]20 planes and would imply that the C-Series never makes a profit,” he says.

Boeing did scrap three flight test planes during the development of its 787 Dreamliner. But the 787 was also significantly negatively impacted by a huge order book that was mis-priced years before it entered service. “Given the much smaller backlog of the C-Series (and we believe much more conservative pricing), we see the risk of mis-pricing as nominal,” he said.

Upside: Mr. Willemse reiterated his ‘sector outperformer’ rating and price target of $6.50 (Canadian).

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Allied Properties REIT reported significant improvement in quarterly 2011 results, but failed to move the needle year-over-year, said Desjardins Securities analyst Jenny Ma.

Fourth-quarter 2011 funds from operations (FFO) per diluted unit of 40 cents was up 11 per cent from the previous quarter, as occupancy rates stabilized, said Ms. Ma. However, for full-year 2011, Allied earned FFO per diluted unit of $1.39, a 12 per cent decline from $1.58 in full-year 2010 -- largely due to turnover vacancy at the REIT’s Cité Multimédia property in Montreal.

“Clearly, Allied has been successful in leasing up the turnover vacancy at Cité Multimédia, and we expect this to contribute meaningfully to per unit cash flow growth throughout 2012,” says Ms. Ma. “Further, with the turnover vacancy issue addressed, management should be able to turn its focus back to the REIT’s acquisition and development priorities in 2012.”

Upside: Ms. Ma maintained her “hold - average risk” rating and $26.60 price target.

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Record sales and a positive long-term uranium market outlook makes Uranium One an attractive stock, according to UBS analyst Brian MacArthur.

Uranium One sold a record 3.4 million pounds of uranium in the fourth quarter of 2011, with average cash costs of $15 per pound, well below analysts’ estimates of $18. Mr. MacArthur expects 2012 production of 11.6 million pounds at total cash costs of $19 per pound.

“Near-term uncertainty continues given that utilities are well covered in the near-term and the possibility of excess inventories entering the market in addition to deferred or cancelled deliveries,” he says. “Longer-term growth is still expected from China, India, South Korea, Russia and Saudi Arabia and we expect a tighter market in 2013 as the [highly enriched uranium] agreement is set to expire.

Upside: Mr. MacArthur maintained his “buy” rating and $4.25 (Canadian) target price.

Related: Uranium One narrows quarterly loss

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The fast-growing smartphone market, especially in China, combined with strong mobile data growth and the increasing importance of downloading applications, should result in strong growth trends for mobile security and productivity software suppliers, said Canaccord Genuity analyst T. Michael Walkley. He believes that points to a bright future for NetQin Mobile , given its strong share in China, expanding international customer base and growing deals with leading wireless partners.

Upside: Mr. Walkley reiterated his “buy” rating and raised his price target to $14.

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Desjardins Securities Inc. analyst Michael Goldberg is giving the thumbs up to Bank of Nova Scotia’s acquisition this week of Howard Weil Inc., a privately held U.S. energy investment boutique. He believes the deal is complementary to the bank’s wholesale business strategy and further expands its reach into the energy sector as well as dedicated equity sales, trading and research capabilities in the U.S.

Upside: Mr. Goldberg reaffirmed Scotia as a “top pick,” with a price target of $65.

Related: Scotiabank beefs up U.S. energy business

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Follow Darcy Keith on Twitter or Stocktwits for the latest analyst actions and exclusive investing news, actionable trading ideas & analysis.

Follow us on Twitter: @eyeonequities, @JodyJodyWhite

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