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An upgrade for Scotiabank - but price target cuts, too

Analyst reaction to Bank of Nova Scotia's latest quarterly earnings have been mixed, with at least one upgrade accompanied by a handful of price target cuts.

CIBC World Markets Inc. analyst Robert Sedran raised his rating on the stock to "sector outperformer" while hiking his price target by $2 to $60.

Excluding one-time items, the bank's core earnings per share came in at $1.12 for the fiscal third quarter, in line with consensus forecasts.

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Mr. Sedran termed the overall results as "favourable," as both lending net interest income and banking fee income came in better than expected. Tempering his enthusiasm were higher fixed expenses and lower trading revenues.

Given the more sluggish outlook overall in the Canadian banking sector, "we favour this bank since we believe it can grow its revenue line at an above-average rate," said Mr. Sedran.

Canaccord Genuity analyst Mario Mendonca trimmed his price target by $2 to $62, citing disappointment with the Scotiabank's decision not to hike its dividend. "Management stated that with a high return on capital the bank feels it is appropriate to preserve capital for growth initiatives and opportunities. While we take management at its word and remain positive on the stock, we are concerned that this may signal a slowdown in earnings growth heading into 2012," he said.

Desjardins Securities Inc. analyst Michael Goldberg trimmed his price target by $1.50 to $65, but reiterated his "top pick" rating on the bank. "Scotia's results showed that it is not immune to the adverse effects of capital markets volatility and competition in Canada; however, the diversity of its operations enabled it to absorb these headwinds and offset them with strength elsewhere," he said.


Reitmans (Canada) Ltd.'s fiscal second-quarter revenues beat Street expectations, sliding only 2 per cent from a year earlier. "The retail sector remains difficult, but Reitmans remains a very profitable company with an enviable balance sheet and very attractive and sustainable dividend that we actually expect to increase in the next few quarters," commented Versant Partners analyst Neil Linsdell.

Upside: Mr. Linsdell upgraded Reitmans to a "buy" while maintaining a $19 price target.

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Related: Retail stocks that could deliver big surprises

Related: Why investors should try Reitmans on for size


RBC Dominion Securities Inc. analyst Mark Sue said customers in North America and China appear to "have turned back on the order spigot" with JDS Uniphase Corp. , a provider of optical products for the telecommunications sector. He remains cautious, however, given that macro-economic uncertainties persist.

Upside: Mr. Sue raised his price target by $2 to $18 while reaffirming his "sector perform-above average risk" rating.


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Alimentation Couche-Tard Inc. reported slightly weaker than expected fiscal first-quarter results, but Canaccord Genuity analyst Derek Dley believes the company's growth profile remains attractive. "Given the challenging consumer environment, we believe Couche-Tard's scale leaves the company better positioned to withstand any potential consumer weakness than smaller convenience store operators," he said.

Upside: Mr. Dley maintained a "buy" rating and $33 price target.

Related: Couche-Tard's quarterly profit rises


First Solar Inc. has been selected to be the exclusive supplier of solar modules to the first utility-scale solar power project in Australia. At 10 megawatts, it's a relatively small project, but Brigantine Advisors analyst Ramesh Misra believes it's a significant win for the company given that Australia could become a major solar market over the next few years.

Upside: Mr. Misra reiterated a "buy" rating and $165 (U.S.) price target.

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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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