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Customers browse the phones at the Telus store in Toronto's Eaton's Centre. (JENNIFER ROBERTS FOR THE GLOBE AND MAIL)
Customers browse the phones at the Telus store in Toronto's Eaton's Centre. (JENNIFER ROBERTS FOR THE GLOBE AND MAIL)

Eye on Equities

Time to hang up on BCE, Telus? Add to ...

BCE Inc., Telus Corp.
TD Securities analyst Vince Valentini has downgraded shares of BCE Inc. and Telus Corp. to “reduce,” saying that both communications companies have “outpaced their fundamentals” over the past several months.

“Even including dividend yields, we forecast negative returns over the next year,” the analyst warned in report released on Wednesday. “Valuations are approaching all-time highs for both stocks, and they are trading at meaningful premiums to both Canadian and U.S. peers.”

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Low interest rates, global economic volatility and weak financial results for high-yielding peers are among the factors that have caused BCE and Telus to “become overbought by Canadian institutional and retail investors,” he wrote.

BCE and Telus currently trade at 6.8 times estimated 2012 EBITDA (earnings before interest, taxes, depreciation and amortization), and that is at a premium to Rogers Communications Inc. and its main U.S. peers, Mr. Valentini noted.

Looking at 2013 EBITDA estimates, BCE shares could fall back to as low as $33 a share, while Telus could tumble to a floor of around $49 a share “if we were to return to more normalized multiples of 5.5 times,” he suggested.

Downside: The analyst, who formerly had a “hold” rating on both companies, is maintaining his one-year target of $39 a share on BCE and $58 a share on Telus.

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Alimentation Couche-Tard Inc.
The convenience store and gas retailer, whose fourth-quarter results beat analysts’ expectations, has “substantial opportunity” to consolidate a fragmented industry,” said Desjardins Securities analyst Keith Howlett. It is poised for more acquisitions as oil companies shed retail assets, he said.

Upside: The analyst, who maintains a “buy” rating, raised his one-year target to $54 a share from $47.

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Goldcorp Inc.
RBC Dominion Securities analyst Stephen Walker reduced his target on the gold miner after it cut 2012 production guidance due to problems at its Red Lake mine in Ontario and Penasquito mine in Mexico. It expects production of between 2.35 to 2.45 million ounces this year versus an earlier estimate of 2.6-million ounces.

Downside: Mr. Walker, who maintains an “outperform” rating, cut his one-year target to $52 a share from $62.

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Jean Coutu Group Inc.
The drugstore-chain franchisor is the “ultimate defensive stock” as demand for prescriptions provides a solid base to expand the store network, said CIBC World Markets analyst Perry Caicco. “Given the strong free cash flow generation, we expect on-going acquisitions of independents and further dividend increases.”

Upside: He maintains a “sector perform” rating and one-year target of $15 a share.

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Alcoa Inc.
BMO Nesbitt Burns analyst Tony Robson downgraded shares of the aluminum producer to “underperform” because of margin pressures for the company’s upstream (mining and refining) divisions, high debt levels and a “poor outlook” for commodity prices. Fundamentals for the “continue to be weak,” he said.

Downside: The analyst also cut his one-year target to $8 (U.S.) a share from $10.

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