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(Adrian Wyld/Adrian Wyld/CP)
(Adrian Wyld/Adrian Wyld/CP)

Eye on Equities

JPMorgan downgrades Magna International Add to ...

Citing concerns over sluggish economic activity in Europe and the stock’s recent rally, JPMorgan Chase & Co. has downgraded Magna International Inc. to “neutral” from “overweight.”

Analyst Himanshu Patel is concerned with comments the company provided during and after the Detroit International Auto Show that hinted of weaker-than-expected medium-term revenue growth potential and margin expansion.

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“While Europe (about 50 per cent of global revenues) still represents one of the biggest opportunities in the stock, an expected 5-8 per cent decline in European industry production in 2012, a year when MGA is launching record new programs and opening several new facilities, is likely to further delay the pace of European margin recovery,” Mr. Patel said in a research note.

JPMorgan lowered its 2012 estimated earnings per share to $4.40 from $4.60 and 2013 projected EPS to $4.75 from $5.35.

Downside: Mr. Patel cut his price target by $6 to $48.

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Shares in RadioShack Corp. plunged this morning after the U.S. consumer electronics retailer stunned the market with a fourth-quarter profit warning late Monday and announced a suspension of share repurchases.

RadioShack projected that earnings fell to 11 cents to 13 cents a share last quarter, a far cry from the 37 cents analysts were expecting. It also forecasted lower net income in 2012. Much of the blame was put on lower margins, which were negatively impacted by heavy promotions during the holiday season and growth in lower margin smartphones, such as the iPhone.

Despite the stock’s freefall, RBC Dominion Securities Inc. analyst Scot Ciccarelli warns investors to refrain from bottom fishing. He slashed his earnings per share estimates for 2011 to 2013, expecting fiscal 2012 earnings per share of 75 cents instead of $1.33.

“We have low levels of confidence in our estimates given the disruptions at RadioShack’s business,” Mr. Ciccarelli said in a research note.

“We believe that the growth from the lower margin mobile business should continue to impact gross margins over the longer-term ... Additionally, ongoing disruptions from Sprint are likely to continue to pressure sales and margins, at least over the near-term. As a result, we remain firmly on the sidelines.”

Downside: Mr.Ciccarelli cut his price target by $2 to $9 and maintained a “sector perform-above average risk” rating.

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Semafo Inc. projected 2012 cash operating costs of $700 to $750 (U.S.) an ounce, well above last year’s range of $595 to $645. “As is the case for other miners, SMF continues to face the challenges of escalating costs due to fuel and labour (among others),” commented CIBC World Markets Inc. analyst Cosmos Chiu, who lowered his net asset value estimates by 10 per cent.

Downside: Mr. Chiu cut his price target by $2 to $13 but maintained a “sector outperform” rating.

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First Quantum Minerals Ltd. held an investor day Monday in which it confirmed all its near-term projects - Kansanshi Phase 1, Ravensthorpe and Kevitsa - are progressing on time while experiencing only modest increases in capital costs, noted CIBC World Markets Inc. analyst Alec Kodatsky. However, the development timeline of the Haquira copper project in Peru, a longer-term project that’s expected to see an environmental impact assessment this year, was pushed out about 18 months compared to prior guidance.

“While negative to sentiment, the modest delay in achieving the long-term production targets has only a small impact to our valuation. FM has the best-in-sector growth profile and the continued advancement of its projects should add significant value for shareholders over the next 12-18 months,” Mr. Kodatsky said.

Upside: Mr. Kodatsky maintained a “sector outperformer” rating but trimmed his price target by $1 to $29.

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Raymond James Ltd. analyst Frederic Bastien is “strongly” recommending investors buy positions in Flint Energy Services Ltd. , believing the contractor is well exposed to growing in-situ projects in the oil sands as well as healthy conventional oil and gas drilling activity.

“The company's activities span the entire energy spectrum-from transporting rigs and tying-in small diameter pipelines to constructing and maintaining large oil sands facilities,” Mr. Bastien said. “The related benefits of Flint's diversified approach, from our perspective, are two-fold. First, it provides investors with exposure to all aspects of the energy cycle. Second, it insulates them from the big swings that certain activities have historically exhibited.”

Upside: Mr. Bastien initiated coverage of Flint with a “strong buy” rating and $20 price target.

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