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Writedown sends Suncor shares skidding - but analysts still say buy

Heavy haulers at a Suncor oil sands mine. Suncor is one of many energy firms reporting this week.

Suncor

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

Suncor Energy Inc. last night reported a massive writedown on its Voyageur project, disclosed a possible $1.2-billion tax bill, and missed earnings estimates for its latest quarter.

Not surprisingly, shares have been hit pretty hard, down by more than 5 per cent at midday.

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Yet, the analyst community so far isn't budging on its almost unanimous view that Suncor is a buy right now. Of the 25 analysts who cover the stock, 24 rate it as a buy, and just one as a hold, according to Bloomberg data. No analyst recommends selling.

That could change as more analysts review Suncor's latest quarter, which was disclosed late Tuesday night, and absorb executive comments made during the earnings conference call. But so far, five analysts today confirmed their buy or outperform ratings, including BMO Nesbitt Burns, Credit Suisse, Stifel Nicolaus, Canaccord Genuity, and National Bank Financial, according to Bloomberg. Only Stifel Nicolaus trimmed its price target - but not by much, lowering it by less than a dime to $37.85 from $37.94.

And the average price target on the Street? It's $43.42. That would imply a healthy 33 per cent rally in Suncor shares within the next year or so.

Analysts in recent months have praised Suncor for its strong balance sheet that benefits from low debt levels, its rising oil sands volumes, improving reliability in its operations that upgrade oil, and expectations that cash costs will stay under control.

Indeed, Suncor did report some encouraging news Tuesday. The cost of building its Firebag oil sands plant was about 15 per cent lower than expected, refinery profits grew at a good clip, and its oil sands operating costs were down by about a buck per barrel from a year earlier.

But the headline figures were ugly. Suncor reported a fourth-quarter net loss of $562-million after the $1.49-billion charge related to its massive Voyageur oil sands project. Excluding that charge, Suncor's operating earnings were $1-billion in the quarter, or 65 cents a share, still missing the average analyst estimate of 76 cents a share.

Even with today's losses, Suncor shares have risen almost 20 per cent since last summer. Analysts believe even with the latest setback, the rally isn't over.

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Dollarama Inc.'s eight-year deal struck this week to provide sourcing services to Central American dollar-store chain Dollar City won't have any significant impact on the Canadian retailer in the short or medium term, commented Industrial Alliance Securities analyst Neil Linsdell. But he thinks it's a great opportunity in the longer term, especially as Dollarama's high-growth phase in Canada slows in about 10 years.

Dollarama will have an option to take a majority stake in Dollar City in year seven of the agreement. The chain is keen on expanding its operations in Central America, Peru, Colombia and Ecuador. "This provides Dollarama with the opportunity to have a very extensive due diligence process and to take plenty of time to test the potential of the Latin American market in a way that minimizes risk, capital and time investment," he said.

Upside: Mr. Linsdell downgraded his rating to "buy" from "strong buy" because of the stock's recent price appreciation, but maintained a price target of $67.

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Expedia Inc. has been a great stock, rising about 15 per cent year-to-date after soaring 112 per cent last year. But RBC Dominion Securities analyst Mark Mahaney believes further gains will be harder to come by. For one thing, valuation is looking a bit stretched. And second, Expedia "is likely now to enter a period of growth deceleration as it will face steadily tougher comparisons during 2013 in bookings, revenue and hotel room nights," he said.

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Upside: Mr. Mahaney raised his price target by $3 to $73 but downgraded the stock to "sector perform" from "outperform."

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New Flyer Industries Inc. this week received two contracts to perform a mid-life overhaul of 1,029 buses run by the Chicago Transit Authority. The contracts are expected to generate $75-million of revenue over 24 months.

"NFI has been working hard to build its after sales services business. How much more business can be secured remains uncertain, but this is a nice win," commented Canaccord Genuity analyst David Tyerman.

Upside: Mr. Tyerman raised his price target by 50 cents to $9.75 and maintained a "hold" rating.

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Silver Wheaton Corp. signed a binding agreement this week with a subsidiary of mining giant Vale SA to acquire gold production from mines in Brazil and Sudbury, Ont. These gold "streams" add more glitter to Silver Wheaton's portfolio, said RBC Dominion Securities analyst Dan Rollins, providing 110,000 ounces of gold production annually over the next 20 years.

Upside: Mr. Rollins raised his price target by $3 to $48 and reiterated an "outperform" rating.

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

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About the Author
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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