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(Paul Daly)
(Paul Daly)

Eye on Equities

Student Transportation seen offering smooth ride for yield chasers Add to ...

Looking for a stock with an impressive dividend payout that should be able to withstand another big dip in the U.S. economy?

Then Student Transportation Inc. might be worth a look, especially as storm clouds continue to gather over the burdensome budget deficits facing many U.S. municipalities.

Student Transportation is the third-largest provider of school bus transportation services in the U.S. In addition to busing children to classes through its 7,400 yellow vehicles, the company also offers a healthy yield of 9 per cent. With municipalities looking at cutting the fat from annual budgets, some could be looking to outsource the work to private contractors.

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Wellington West Capital Markets Inc. analysts Greg Colman and Alex MacDonald have conducted a case study of school bus fleet conversions and found that municipalities could achieve a 17 per cent annual cost saving by outsourcing the service.

Based on prior conversions, the company has proven it can operate buses in a more efficient manner, with less route overlap, far fewer missed stops and an increased number of buses arriving on time, the analysts said in a report. The company aims to grow through acquisitions, new contracts and converting public-bus operated school districts to private contractors, and Wellington West believes it's well positioned to do so.

Getting bigger improves the economies of scale for Student Transportation, since it is able to purchase not only fuel and insurance in large volumes, but also maintenance parts.

It's a "win-win" for both the company and the school boards, the analysts concluded.

"We view STB as a well managed, fiscally prudent company that will continue to consolidate this highly fragmented sector," they wrote. "We recommend exposure in STB to investors who seek reliable yield with capital appreciation potential in an industry we believe will withstand the current economic uncertainty relatively well."

Upside: Mr. Colman and Mr. MacDonald rate the stock as a "strong buy" and have a 12-month price target of $7.

A bullish technical pattern known as a W-formation has emerged in Walt Disney Co. stock and its recent climb to a 52-week high of $40 (U.S.) signals a breakout toward higher targets, said Phases & Cycles analysts Monica Rizk and Ron Meisels. Technical indicators, including the rising 40-week moving average and the MACD, confirm the bullish status, they said.

Point-and-figure measurements suggest the next target is $49, followed by $59, they said.

First Quantum Minerals Ltd. has unveiled an aggressive plan to roughly triple copper production over five years. CIBC World Markets Inc. analyst Alec Kodatsky said this will translate into 300,000 tonnes more of annual copper capacity by 2015 than he had earlier modelled.

Upside: Mr. Kodatsky hiked his target price by $15 to $155.

Read More: Analysts sing praises of First Quantum

Related: UBS puts First Quantum on list of seven top stock picks

Related: TD: Copper primed for super spike

Baker Hughes Inc. beat fourth-quarter earnings estimates thanks to strong sales both in North America and internationally. With its improved asset base across the globe, the company is well positioned to take advantage of growing demand for oil rig services and is allocating more capital towards improving costs and its supply chain, said Canaccord Genuity analyst John Tasdemir.

Upside: Mr. Tasdemir raised his 12-month target price to $75 (U.S.).

Northern Dynasty Minerals Ltd. will likely become the subject of a takeover once it releases a technical report on its 50-per-cent owned Pebble copper-gold-molybdenum project in Alaska, said TD Newcrest analyst Craig Miller. The report may come this quarter and recommend a start-up open pit mine, said Mr. Miller, who believes an auction process could evolve for the company.

Upside: Mr. Miller hiked his price target to $26 from $15.50 due a change in his calculation methodology related to adopting a revised mining scenario.

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