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Insurer's stock offering called ‘uncomfortably opportunistic’ Add to ...

Inside the Market's roundup of some of today's key analyst actions

Industrial Alliance Insurance & Financial Services Inc.’s announcement this week that it will issue $225-million in new shares was both surprising and “uncomfortably opportunistic,” said Canaccord Genuity analyst Mario Mendonca.

The insurer will pay down debt with the proceeds, reducing its leverage-to-equity ratio to 29.3 per cent from 35.2 per cent. Mr. Mendonca expects this will save the company $4.2-million in interest costs every quarter, but he questions whether that benefit will be enough to justify the extra equity dilution.

“The offering is surprising to us because with earnings and the macro picture improving noticeably, we expected the company to allow the leverage ratio to decline naturally over time through growth in common equity (earnings less dividends) and the maturity of debt,” he said. “We call the deal opportunistic because it coincides with the very recent sharp run up in the stock and comes on the heels of IAG’s strongest quarterly results in many years.”

Downside: Mr. Mendona cut his price target to $40 from $42. And, citing the stock’s recent price appreciation, also downgraded the company to “hold” from “buy” and removed it from Canaccord Genuity’s “focus list” of top investing ideas.


Cameco Corp. offers investors “a compelling combination of production growth, high-quality assets, and valuation that is best poised to benefit from solid uranium fundamentals on both the supply and demand side,” said Cantor Fitzgerald analyst Rob Chang.

Mr. Chang, who has been bullish on the uranium sector for some time, likes Cameco for its size - it’s the world’s largest publicly traded uranium focused producer in the world - and its dominant land position in northern Saskatchewan’s Athabasca Basin, which hosts the world’s highest-grade uranium mines. He also likes the company for its aggressive production growth plans and its exposure to the full nuclear cycle, including electricity generation through its partial ownership in Bruce Power.

Upside: Mr. Chang initiated coverage with a “buy” rating and a target price of $30.50 per share.


Recent price weakness in Argonaut Gold Inc. stock represents an attractive entry point for investors, said Stonecap Securities analyst Christos Doulis, who upgraded the stock to “outperform” from “sector perform.”

Shares in the company, which is growing into an intermediate-sized gold producer, have fallen 28 per cent since hitting 52-week highs in early October. Mr. Doulis notes Argonaut ended last year with $191-million in cash and equivalents, providing it with ample financial flexibility in the current tough environment for gold producers.

“While Argonaut appears expensive based on short-term cash flow (it is trading at about 10.9 times our 2013E cash flow per share estimate), it is now trading at 0.7 times our net asset value per share estimate and is not expensive on this basis,” Mr. Douis said in a research note. “Furthermore, given management’s credibility, track record of execution and pipeline of projects (which can likely be fully funded from existing cash and cash from operations) that can transform the company into an approximate 500,000 ounce per annum gold producer (over the next few years), we believe a premium cash flow per share multiple is warranted.”

Upside: Mr. Doulis maintained a price target of $11.35.


RBC Dominion Securities analyst Nathan Piper downgraded Parex Resources Inc. to “sector perform” from “outperform” after the company’s latest update on reserves.

The company enjoyed strong exploration results in 2012, but recently the oil and gas fields found were mostly relatively small and short life. Meanwhile, the stock continues to trade above its “core value,” he said. “We see greater value and near-term upside potential elsewhere in the sector,” said Mr. Piper.

Downside: Mr. Piper cut his price target by $1 to $6.50.


Fortress Paper Ltd.’s appointment of Yvon Pelletier as president of its dissolving pulp operations was applauded by Canaccord Genuity analyst Neal Gilmer, who upgraded the stock to “buy” from “hold.”

Mr. Pelletier was previously with Tembec for 32 years, most recently as president of its specialty cellulose and chemical group.

“We view this as a positive announcement as Mr. Pelletier has extensive experience and will likely be able to bring a fresh perspective to FTP’s dissolving pulp operations that have struggled to ramp to full operating rates and targeted cost structure,” Mr. Gilmer said in a note. “While it should take some time for Mr. Pelletier to have an impact on operations as he ramps up, we believe this announcement could possibly mark a bottom in the shares following the recent string of bad news.”

Upside: Mr. Gilmer raised his price target by $2 to $11.


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

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