More upside seen for Jean Coutu Group

Jean Coutu Group (PJC) Inc. surprised analysts this week in reporting a solid fiscal first quarter, helping to ease concerns about the dangers posed to its business by generic drug reforms in Quebec.

Its profit per share of 22 cents was three cents ahead of consensus, as the province's biggest drug retailer countered the effects of lower generic drug prices by expanding its network of stores and boosting sales from its own generic-drug division.

Jean Coutu also disclosed plans to sell 10 per cent of its shareholding in Rite Aid Corp. , which would bring its stake down to 25 per cent.

That action suggests to Desjardins Securities Inc. analyst Keith Howlett that the company is abandoning its longer-term ambition to become a major direct player in the U.S. market - a plus in that it reduces risk for shareholders.

While profit growth may slow in future quarters, Mr. Howlett expects the company to stay on a steady course, commenting that "underlying earnings power is stronger than we had previously been forecasting."

"Jean Coutu Group continues to gain market share of prescriptions in Quebec, and also to benefit from growing patient demand for prescription drugs and the ongoing shift from branded to generic drugs," he said in a research note today.

But CIBC World Markets Inc. analyst Perry Caicco cautions that investors shouldn't expect to make a killing on the stock. Ongoing drug reforms and new competitors will keep growth rates low and valuations down. "The Quebec drugstore market is calm in the face of change, and alternative opportunities for PJC are minimal," he said.

Upside: Mr. Howlett raised his target price by $1 to $12.50 and rates the stock as a "buy-average risk." Mr. Caicco rates the stock as a "sector performer" and left his price target of $12 unchanged.

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Many investors have been assessing Talisman Energy Inc.'s operating performance and outlook to help explain the company's disappointing share price performance of late. But RBC Dominion Securities Inc. analyst Greg Pardy, after touring U.S. Northeast facilities with company executives, has "come up dry." The tour "reinforced its 5 to 10 per cent organic production growth objective and highlighted a series of well-defined potential catalysts over the company months" that could lift the stock price, he said.

Upside: Mr. Pardy rates Talisman Energy as an "outperform" with a price target of $28.

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While President Obama has announced a major troop withdrawal from Afghanistan over the next year and a half, management at Canadian Helicopters Group Inc. doesn't expect much downside for its military business, Desjardins Securities Inc. analyst Benoit Poirier said after meetings with the company. The U.S. will withdraw its troops before removing contractors such as CHL, and management is confident revenues from the region will remain at current levels until at least the end of 2012, he added.

Upside: Mr. Poirier continues to rate the stock as a "top pick," with a price target of $33.

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Desjardins Securities Inc. analyst John Hughes is mildly more bullish on the outlook for HudBay Minerals Inc. after the miner released an optimization study for its Lalor Lake project in Manitoba. HudBay now expects higher ore production at the project, as well as the construction of a new ore processing facility.

Upside: Mr. Hughes raised his price target to $20.60 a share from $20.35 and rates the company as a "buy-above average risk."

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Rubicon Minerals Corp. has released a promising preliminary economic assessment for its Phoenix project, but envisions a smaller-scale project than what had been anticipated by CIBC World Markets Inc. analyst Barry Cooper. He believes Rubicon's shares, trading at almost a 50 per cent premium to other more advanced and better funded gold companies, are "quite overvalued," and thinks that future increases in resources are already factored into its trading price.

Downside: Mr. Cooper slashed his share price by $2 to $4 and rates Rubicon as a "sector underperformer."