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Analyst scolds Capstone for paying too much for BHP copper mine

Resource sectors that have been hard hit in recent years by the U.S. housing crash may present investment opportunities in 2013. Capstone Mining Corporation's Minto Mine is pictured in Minto, Yukon August 21, 2012. REUTERS/Chris Wattie (CANADA - Tags: POLITICS ENERGY BUSINESS)


Inside the Market's roundup of some of today's key analyst actions. This post is updated through the trading day.

Capstone Mining Corp.'s $650-million acquisition of BHP Billiton Ltd.'s Pinto Valley copper mine is getting the thumbs down from Jennings Capital Inc.'s Garnet Salmon.

Calling the price-tag too expensive for a project with only an initial five-year mine life, Mr. Salmon downgraded Capstone to a "hold" rating from "buy." The analyst thinks there are better assets available in the public market, and notes that the company's cash hoard of $500-million will be wiped out and replaced with a net debt position following closure of the deal.

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"Capstone has done very well with its past acquisitions that are currently in production," Mr. Salmon said in a research note. "However, with the challenges faced in Chile with its Santo Domingo project, we believe management felt pressure to show prudent capital management and near-term growth.

"In our view, Pinto Valley does not provide the scalability, long life that even some assets (companies) in the publicly-traded market could add to Capstone's well-rounded profile," he said.

Mr. Salmon wasn't the only one surprised the asset fetched as much as it did. Deutsche Bank earlier estimated the mine could sell for around $274-million, while UBS estimated it was worth $500-million.

Mr. Salmon also believes the Pinto Valley acquisition may mean Capstone will place its Santo Domingo copper-iron-gold project in Chile on hold in coming months. The development project, owned in partnership with Korea Resources Corp., was estimated to see its first production in 2017.

Target: Mr. Salmon cut his price target to $2.15 from $3.40. The median price target among analysts is $3.36, according to Thomson First Call.


BMO Nesbitt Burns analyst Benjamin Pham downgraded Canadian Utilities Ltd. to "market perform" from "outperform" in the aftermath of the company's disappointing first-quarter results last week.

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Earnings per share of $1.40 came in below consensus estimates of $1.44. The company struggled to meet expectations in part because of lower realized prices on forward power sales.

"While we continue to believe CU is going through a positive secular transformation and that it can continue to deliver superior dividend and earnings growth, we believe this positive outlook is priced into the shares at current levels and do not expect share price appreciation to be linear," Mr. Pham said.

Target: Mr. Pham bumped up his price target by $1 to $83. The median price target is $79.


UBS Securities analyst John Janedis has upgraded Walt Disney Co. to "buy" from "neutral," believing that the market is under-appreciating the potential for greater return on capital at the company and better margins ahead for its amusement parks.

Mr. Janedis raised his earnings per share estimates for the company for fiscal years 2013 through 2015. "Based on our estimated changes, Disney will have incremental free cash flow, which we expect to be used for significantly greater dividends and share repurchases," he said.

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He also raised his margin targets for Disney's parks division, given that most start-up costs from recent projects have now come to an end. He believes this will help revenue growth feed the bottom lin starting in the third quarter of calendar year 2013.

Target: Mr. Janedis raised his price target to $72 (U.S.) from $55. The meAdian target is $63.


Allied Nevada Gold Corp. shares may appear undervalued, but investors should be cautious because it will take several quarters for the company to demonstrate that its expanded heap leach operation at the Hycroft gold mine is performing as planned, said RBC Dominion Securities analyst Sam Crittenden.

He downgraded the stock to "sector perform" from "outperform," adding that the recent plunge in gold prices "layers on more risk."

"While trading at a discount, we expect ANV to remain a "show me" story until the expanded heap leach operation begins to demonstrate consistent operating results and cash generation," Mr. Crittenden said.

Once the heap leach operation is expanded, the company plans to construct a large 130,000-tonnes-per-year mill. But given the sharp drop in gold prices, mill construction could be delayed, warned Mr. Crittenden.

Target: Mr. Crittenden cut his price target by $4 to $15 (Canadian). That's well below the median target of $32.95.


A rough winter for influenza cases should make for a healthy fiscal fourth quarter at Jean Coutu Group (PJC) Inc. when results are reported Wednesday, said RBC Dominion Securities analyst Irene Nattel.

"We anticipate solid underlying trends driven by a mix of cost control and moderate same-store sales growth, boosted by strong influenza infection rates during the quarter," Ms. Nattel said.

She is forecasting earnings per share of 26 cents, inline with the Street consensus and up 4 per cent from a year earlier.

Target: Ms. Nattel raised her price target by $1 to $17. The average price target is $16.50, according to Bloomberg.


For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @ eyeonequities

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Investment Editor

Darcy Keith is The Globe and Mail's Investment Editor. He has been a business journalist since 1992 and joined the Report on Business in 2010 from Yahoo! Canada, where he was the senior editor of finance. More


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