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A Rogers Communications store in Ottawa (CHRIS WATTIE/CHRIS WATTIE/REUTERS)
A Rogers Communications store in Ottawa (CHRIS WATTIE/CHRIS WATTIE/REUTERS)

Eye on Equities

Rogers and Telus set to outperform: RBC Add to ...

Competition in the wireless and television sectors is fierce, but RBC Dominion Securities Inc. analyst Drew McReynolds believes that shouldn’t deter investors from buying shares in Rogers Communications Inc.

He has assumed coverage of the stock with an “outperform” rating, believing that it's trading at an attractive entry point even on risks that rivals could squeeze its profitability.

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“We believe the negative financial effect of increased wireless competition on Rogers and importantly, the associated negative investor sentiment, are largely priced in at current valuation levels,” Mr. McReynolds said in a research note. “Any new wireless entrant consolidation and/or bankruptcy over the next 12 months could be a positive catalyst for the stock.

“Furthermore, we believe investors will benefit from continued dividend increases and aggressive share repurchases, although somewhat muted by (estimated) rising cash taxes and spectrum costs in 2012 and 2013.”

He estimates that Rogers trades at a “rare valuation discount” to its peer group, with a forward 12-month enterprise value of 5.9 times earnings before interest, taxes, deprecation and amortization, versus an industry average of 6.2 times.

Upside: Mr. McReynolds set a price target of $44.

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Communications provider Telus Corp. has the best combination of growth, inexpensive valuation, and potential capital returns within its peer group, argued RBC’s Mr. McReynolds. “Despite likely pension contributions and wireless spectrum costs, we believe the company remains firmly on track to meet targeted dividend increases of more than 10 per cent in 2012 and 2013 while remaining in the midpoint of the targeted payout range of 55 – 65 per cent of net earnings,” he said.

Upside: Mr. McReynolds assumed coverage with an “outperform” rating and $61 price target.

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Nike Inc. should report a strong fiscal second quarter next week thanks to solid demand for lightweight running and basketball footwear, predicted Canaccord Genuity analyst Camilo Lyon. But he said his enthusiasm “is tempered by macro concerns in Europe and strategy shifts in China that could restrain the demand equation.”

Upside: Mr. Lyon maintained a “hold” rating, commenting that risk-reward is not compelling at current levels,.

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New assay results from nine drill holes at Lumina Copper Corp.’s Taca Taca copper-molybdenum-gold project in Argentina “bode well” for expanding the size of the mineral resource base, said Raymond James Ltd. analyst Adam Low. “As the sole owner of a significant copper project in a mining-friendly province of Argentina with good access to infrastructure, we view Lumina as a potential acquisition candidate,” he added.

Upside: Mr. Low reiterated a “strong buy” rating and $17 price target.

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EcoSynthetix Inc. reported disappointing preliminary fourth-quarter results, mostly due to reduced shipments to one major customer in Asia. But Canaccord Genuity analyst Sara Elford believes investors shouldn’t be too worried, noting the company - which transforms renewable resources into products that replace petroleum-based chemicals - is going after a huge multibillion-dollar market. “We see the weakness in the stock as a very attractive buying opportunity for investors with a one-year, or longer, time horizon,” he said.

Upside: Ms. Elford reiterated her “buy” rating and trimmed her price target by $1.25 to $11.50.

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