Manulife Financial Corp. may see a hit to earnings in an upcoming quarter as a result of today's earthquake in Japan, warns Desjardins Securities Inc. analyst Michael Goldberg.
Manulife may have exposure to the disaster through its catastrophe property & casualty reinsurance business, according to Mr. Goldberg. Significant losses in the past in this business occurred due to hurricanes Katrina ($165-million after tax) and Wilma ($71-million after tax).
"While it is too early to have a clear idea of the possible impact of this event, Manulife indicates that it is not expected to be material in relation to annual earnings, although it may be material in relation to earnings in a single quarter (where materiality is usually considered above 5 per cent)," Mr. Goldberg wrote in a note this afternoon.
Manulife's catastrophe reinsurance involves coverage above an "attachment point," with a limit on overall exposure, he noted. "We are waiting to hear what the typical attachment point is and Manulife's loss limit. But, based on the information we have, we estimate that the impact could be in the range of 3 to 8 cents (Canadian) per share, with a noticeable impact on earnings in the quarter that this possible loss is recognized."
Mr. Goldberg rates the stock as a "buy-average risk" with a price target of $21. He expects earnings per share in 2011 of $1.80.
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Investors were swift in punishing Transat A.T. Inc. Thursday after the travel company reported surprisingly weak first-quarter results, sending its shares down 29 per cent.
As of midday Friday, the stock was not seeing much of a recovery, as buyers remain skeptical given the unpredictability of the company's past performance.
But after such a brutal selloff, the inevitable question arises: Could this be a superb buying opportunity?
Canaccord Genuity analyst David Tyerman tends to think so.
"We recommend buying TRZ shares to participate in TRZ's substantial rebound potential," Mr. Tyerman said in a research note. "In particular, we believe yesterday's 29 per cent selloff may be overdone due to the potential for upside surprises versus guidance."
He admits it's not a no-brainer. Transat's financial results have been volatile in recent years and purchasing its shares right now certainly comes with risk.
Also, the current fiscal quarter shows signs of being quite weak amid continued excess competition in the North American sun destination markets. Management guidance suggests the quarter will be similar to the second quarter of 2010, when it posted a small loss. But Mr. Typerman believes actual results may come in a bit stronger than that, provided current fuel surcharges stick and load factors and hotel rates are decent.
Looking further out, guidance for the summer months appears inconclusive. "Volume sounds decent and pricing flat, but it is not clear if TRZ can offset higher fuel costs. Again, there may be upside if fuel surcharges hold," he said.
Mr. Tyerman rates the stock as a "buy" with a revised price target of $18.25.
He's not alone in seeing substantial upside.
CIBC World Markets Inc. analyst Kevin Chiang maintained a "sector outperfomer" rating, and even though he cut his price target to $16.75 from $25, that still implies a return of roughly 40 per cent. He notes that Transat's valuation looks compelling, trading at 2.2 times fiscal 2012 estimated earnings before interest, taxes, depreciation and amortization, compared with a historical average of 4.5 times.
TD Newcrest analyst Tim James wasn't quite as optimistic, downgrading the stock to a "hold" from a "buy" and cutting his price target to $15.50.
"Transat maintains a strong cash position and balance sheet which should provide some support to the stock," said Mr. James. "However, with limited signs of improvement ahead despite strong air travel demand and aggressive cost saving initiatives undertaken by the company in recent years, we believe Transat's valuation could remain depressed in the short-term."
Darcy Keith