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(JOHN LEHMANN/GLOBE AND MAIL/JOHN LEHMANN)
(JOHN LEHMANN/GLOBE AND MAIL/JOHN LEHMANN)

Eye on Equities

Pulp shipments show Canfor primed for a rally: analyst Add to ...

Fresh statistics on the pulp and paper industry have revealed a marked improvement in industry fundamentals, making for an opportune time for investors to buy stock in Canfor Pulp Products Inc. , according to Raymond James Ltd. analyst Daryl Swetlishoff.

The Pulp & Paper Products Council stats for February showed higher operating rates in the industry and lower inventories, largely thanks to strong shipments to China.

“We take these improving pulp stats as confirmation the bottom in pulp markets is behind us and urge clients to further add to positions in Canfor Pulp,” Mr. Swetlishoff said.

Chinese softwood shipments rose 44 per cent year-over-year to 489,000 tonnes in February, and year to date are up 42 per cent. That offset weak North American and Western European shipments, which fell 6.0 per cent and 4.8 per cent, respectively. Despite operating rates for northern bleached softwood kraft (NBSK) pulp climbing to 99 per cent, inventories, at 30 days, are considered balanced, he notes. All this, he says, points to recent price increases in the NBSK market being able to stick around.

Upside: Mr. Swetlishoff reaffirmed his “strong buy” rating on Canfor and raised his price target by $2 to $19.

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Desjardins Securities Inc. analyst Keith Howlett has downgraded Colabor Inc. to “sell” from “buy” after the food products distributor reported earnings well below expectations and slashed its dividend by 33 per cent. While the company’s new CEO, Claude Gariépy, has a good track record of success, “we see no reason to own the shares until after the share price settles into a new level over the next few weeks and earnings visibility is improved,” he said.

Downside: Mr. Howlett cut his price target to $7.50 from $11.50.

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Rona Inc. has outlined “a bold and decisive” plan to improve return on invested capital by focusing on smaller stores closer to where people live instead of the big-box format, noted Desjardins Securities Inc. analyst Keith Howlett. But he cautioned that while management is working tirelessly on that plan, it is not known what the ultimate consumer and competitor reaction will be.

Upside: Mr. Howlett maintained a “hold” rating and $10 price target.

Related: Rona, other retailers thinking outside the big-box

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Open Text Corp.’s growth as Canada’s largest software company has been historically fuelled by acquisitions. But new CEO Mark Barrenechea is promising a more balanced approach with organic growth going forward. If Open Text succeeds, CIBC World Markets Inc. analyst Stephanie Price believes investors “will ascribe additional value to its growth trajectory.”

Upside: Ms. Price maintained a “sector outperformer” rating and $71 (U.S.) price target.

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Ontario has confirmed it has selected SNC-Lavalin Group Inc. as the preferred bidder for the first phase of the Highway 407 east extension. SNC also announced it has secured a $133-million project management contract from Petroleos de Venezuela SA. While these are positive wins, Raymond James Ltd. analyst Frederic Bastien believes investors should stay cautious on the stock until the internal probe into $35-million of undocumented payments is concluded later this month.

Upside: Mr. Bastien maintained a $48 price target and “market perform” rating.

Related: Highway 407 contract no panacea for SNC-Lavalin shares: NBF

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