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(Fernando Morales/Fernando Morales/The Globe and Mail)
(Fernando Morales/Fernando Morales/The Globe and Mail)

Eye on Equities

Pinnacle's Chapter 11 filing no problem for Bombardier: NBF Add to ...

The Chapter 11 filing of Pinnacle Airlines Corp. should not hurt Bombardier Inc.’s share price, even though the Montreal-based transportation giant is listed among its creditors, says National Bank Financial analyst Cameron Doerksen.

Pinnacle Airlines, a U.S. regional carrier that is a major operator of Bombardier-built regional jets and turboprops, announced Sunday that it has filed to restructure under Chapter 11 in the United States.

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Bombardier’s exposure is less than $5-million (U.S.) and therefore immaterial to the aircraft manufacturer, according to Mr. Doerksen. Pinnacle’s fleet is largely financed by Export Development Canada (EDC), making it the largest secured creditor. EDC has extensive experience in Chapter 11s and has successfully remarketed aircraft in the past. Mr. Doerksen does not expect EDC to pull back from financing Bombardier-built aircraft as a result of the Pinnacle Chapter 11.

Meanwhile, there is no risk to Bombardier’s backlog, as neither Pinnacle nor any of its subsidiaries have any aircraft on firm order.

Pinnacle (under its Colgan Air subsidiary) will cease flying 30 Bombardier Q400 turboprops for United Airlines. EDC will take responsibility of these aircraft and will need to re-market them. While United may still wish to have the Q400s operating within its network, this is far from certain. Failing that, the addition of 30 relatively new Q400s into the used market may soften sales of new Q400s, but Mr. Doerkson does not expect this to have any impact on current sales efforts.

Bombardier has experience dealing with regional airlines that have filed for Chapter 11 - and these did not seriously affect its share price, he notes.

“Another Bombardier customer, American Eagle, is also currently in Chapter 11 as part of American Airlines’ restructuring,” says Mr. Doerksen. “Interestingly, American intends to add to its fleet of larger regional jets (70+ seats) as part of its restructuring plan. Given that American Eagle operates 70-seat Bombardier CRJ700s in its fleet, there is a good possibility that Bombardier could see additional orders for larger regional jets from this customer.”

Upside: Mr. Doerksen is maintaining his “sector perform” rating and $5.25 (U.S.) price target.

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Clarus Securities Inc. analyst Stephen Kammermayer is initiating coverage on Essential Energy Services Ltd. with a “buy” recommendation, citing its solid market share and strong balance sheet.

Essential owns Western Canada’s largest coil tubing service rig fleet and has recently expanded into Colombia. Its fastest-growing offering, the Tryton Mutli-Stage Fracturing System, is increasingly in demand as horizontal drilling and multi-stage completions increase in popularity in the oil patch. Mr. Kammermayer says the company’s balance sheet provides it the flexibility to either add to its capital budget as opportunities arise, or further return capital to shareholders. It recently initiated a dividend policy, paying 2.5 cents per share quarterly, for a current yield of 4.3 per cent.

Upside: Mr. Kammermayer set a price target of $3.50

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Canaccord Genuity’s latest channel checks suggest that iPhones are outselling all other smartphones combined at Sprint and AT&T, and selling at roughly equal volume to all Android smartphones at Verizon, said analyst T. Michael Walkley. Further, the checks indicated the iPhone is gaining share in emerging markets and maintaining strong share in Western Europe, while the iPad continues to sell well.

“With the recent dividend and buyback program likely to attract new investors, Apple remains a top pick,” he said.

Upside: Mr. Walkley reiterated his $710 (U.S.) price target.

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RBC Dominion Securities Inc. analyst Stephen D. Walker has upgraded Tahoe Resources Inc. to “outperform,” as his confidence builds that the company’s Escobal project will start operations in the second half of next year. Calling Escobal “the next world-class silver mine,” he expects the project to produce 19 million ounces of silver annually for its first five years. The government of Guatemala should approve the project shortly, and Tahoe is well financed through development, he added.

Upside: Mr. Walker raised his price target by $5 to $30.

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Desjardins Securities Inc. analyst Jamie Murray has upgraded Trinidad Drilling Ltd. to a “buy” from “hold,” based on recent price depreciation. “While we still believe its debt reduction program will restrain capex/dividend growth in the near term, and while we concede that growth opportunities are scarcer than in the second half of 2011, the company’s high-performance rig fleet should perform well in a flat rig count environment,” he said.

Upside: Mr. Murray has a $9.50 price target.

 
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