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An artist's rendition of the new Bombardier C Series jetliner. REUTERS/ Bombardier (STR/REUTERS)
An artist's rendition of the new Bombardier C Series jetliner. REUTERS/ Bombardier (STR/REUTERS)

Eye on Equities

RBC upgrades Bombardier to "outperform" Add to ...

RBC Dominion Securities Inc. analyst Walter Spracklin believes Bombardier Inc. shares have become oversold - partly because of year-end tax-loss selling - and today upgraded the transportation giant to “outperform” from “sector perform.”

“Downward pressure on BBD shares as a result of concerns regarding the company's financial position have been aggravated by what we believe to be pronounced tax loss selling at year end,” Mr. Spracklin said in a research note.

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“With the shares trading at an EV/EBITDA (enterprise value to earnings before interest, taxes, depreciation and amortization) multiple of 3.7 times to our 2013 estimate, we believe the company's 28 per cent discount to peers has become simply too attractive to ignore.”

RBC conducted a stress test of Bombardier’s balance sheet, analyzing the performance at each of its divisions given various scenarios. “It is our conclusion that the current valuation has discounted all but the most dire of plausible scenarios,” he concluded.

Mr. Spracklin cautioned that the key risk to his upgrade, and the stress test, is the duration and intensity of the slowdown in aerospace sector demand. “Should the negative macro situation prevail beyond 2012, we would see downside to our assumptions.”

As such, he referred to his upgrade as a “trading call” and is continuing to take a very cautious view on the shares in the near-term. He trimmed his price target by $1 to $5, although that still represents a potential all-in return of about 45 per cent.

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CIBC World Markets Inc. analyst Todd Coupland isn’t impressed with Belden Inc.’s $280-million, $22-per-share hostile takeover bid for RuggedCom Inc. , referring to it as “an opportunistic attempt” to buy a “Canadian gem.”

Analysts have already suggested a bidding war could erupt for RuggedCom, an up-and-coming Canadian maker of communications equipment for harsh environments. Mr. Coupland agrees, and raised his price target by $5 to $28 while reiterating a “sector outperformer” rating.

“We believe Belden's ... offer undervalues RuggedCom's long-term potential. The company has seen 26 consecutive quarters of revenue growth on a rolling 12-month basis as well as being profitable every quarter on an adjusted income basis during that time,” Mr. Coupland said in a note.

While the 62 per cent premium to RuggedCom’s closing price from last Friday appears fair on the surface, he notes that the stock has traded consistently above $20 prior to July.

“Since then RCM has reported an even stronger September quarter. End of year tax loss selling has made for opportunistic timing for Belden's hostile bid,” he added.

Mr. Coupland believes RuggedCom should be able to secure a better, board supported, deal. He sees potential interest coming from networking companies like Cisco, industrial automation firms such as Siemens and even General Electric, where RCM’s founders first worked.

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Brookfield Asset Management Inc. has a strong track record of creating value through the acquisition of high-quality assets, especially those with problematic balance sheets, and current conditions are ideal for doing more such deals, said CIBC World Markets Inc. analyst Alex Avery. He notes that Brookfield is trading 23 per cent below his net asset value estimate of $34 per share.

Downside: Mr. Avery reiterated a “sector outperformer” rating, but trimmed his price target by $4 to $34 (U.S.)

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CIBC World Markets Inc. analyst Alec Kodatsky is sticking with his prediction that HudBay Minerals Inc. shares could more than double in coming months, even as the company provided guidance Monday suggesting a modest drop in copper production next year. He notes HudBay’s revised outlook was in line with expectations and believes shares could get a boost if the company decides to proceed with construction of its Constancia project in Peru in the first quarter of next year.

Upside: Mr. Kodatsky maintained a “sector outperformer” rating and $21.50 price target.

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Canadian Helicopters Group Inc. is poised to see “abundant” growth opportunities and should benefit from continued robust demand for flying services in the mining and oil and gas sectors, said National Bank Financial analyst Cameron Doerksen. He believes the company will be successful in winning new contracts in new regions, such as South America and Southeast Asia, and maintains the stock is trading at an attractive valuation below its peer group.

Upside: Mr. Doerksen initiated coverage with an “outperform” rating and 12-month price target of $30.

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