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Cineplex downgraded, Yahoo slapped with rare sell rating

The silver screen hasn't been attracting big audiences this fall, with North American box office receipts falling well short of movie industry hopes.

You can partly blame Happy Feet for souring the mood in Hollywood. The sequel to the computer animated penguin feature underperformed expectations significantly, contributing to a 4.2 per cent decline in November box office sales from a year earlier to their lowest point since 1995 (when adjusted for ticket price inflation).

Some big blockbusters this Christmas season may help turn things around, including new entries from Sherlock Holmes, Mission Impossible, and Alvin and the Chipmunks (you can be forgiven for thinking Hollywood is lacking in creativity these days).

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But so far December isn't off to a very busy start, with box office receipts down 5.6 per cent year-over-year, notes Raymond James Ltd. analyst Kenric Tyghe.

This doesn't bode well for Cineplex Inc. and Mr. Tyghe is doubting the stock, currently near 52-week highs, can extend its gains in coming months. He downgraded Cineplex today to "market perform" from "outperform" as he lowered his fourth-quarter box office growth estimates.

"While we continue to believe that Cineplex, on The Adventures of Tintin and strategic screen allocation, will outperform the industry box office, our estimates are necessarily revised lower," he said in a note. He reduced his fourth-quarter 2011 revenue estimate from $264.8-million to $252.9-million, and his earnings before interest, taxes, depreciation and amortization estimate from $45.4-million to $42.4-million.

Downside: Mr. Tyghe maintained a $27 price target.

Related: Cineplex: Thinking outside the theatre box

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Heath Terry, who previously covered the technology sector for Canaccord Genuity, has gone to Goldman Sachs and promptly slapped Yahoo Inc. with a "sell." That makes him the only analyst on the Street with the negative rating: 14 have hold ratings, and a dozen have either a buy or strong buy recommendation.

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Although the Internet giant is fielding offers for a partial or full stake in the company - which has helped bolster its stock price of late - Mr. Terry sees little reason investors should pile on. And he made clear he wasn't counting on Yahoo's current management to turn things around.

"Despite the strategic review currently underway at Yahoo!, we do not expect any positives for public shareholders to come out of it," wrote Mr. Terry in a research note.

"Yahoo simply faces too many competitive and structural headwinds to believe any kind of meaningful turnaround is possible," he said. "While there is significant asset value on the balance sheet and in the company's large, though increasingly less engaged user base, we continue to believe, as we have since before the first Microsoft offer, that the segment of management driving the company is intent on trying to revive Yahoo as a company, regardless of the cost to shareholders."

Downside: Mr. Terry set a $14 (U.S.) price target.

Related: Microsoft signs confidentiality pact with Yahoo

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Kinross Gold Corp. and Ecuador reached terms for the development of the Fruta del Norte project that covers royalties, profit-sharing and corporate taxes. It also includes value added and windfall taxes, which surprised Dundee Capital Markets analyst Paul Burchell. "While we appreciate this agreement is somewhat like a shotgun wedding (with the government holding the gun), we believe the proposed terms, particularly the windfall tax, will nevertheless mute some, but not all, of the project's upside to Kinross should gold prices climb higher."

Downside: Mr. Burchell cut his price target by 50 cents to $17.50 and maintained a "neutral" rating.

Related: Ecuador to sign mining deals amid uncertainty

Related: Slide in Kinross shares may not be over yet

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Hanfeng Evergreen Inc. "underwhelmed us again" in reporting its fiscal second quarter, commented Canaccord Genuity analyst Keith Carpenter, with the Chinese fertilizer producer experiencing lower-than-expected volumes and gross margins. "We have serious concerns about the volatility in the sales and earnings profile of this company from quarter to quarter. With four poor quarters reported out of the past five, we believe management needs to tell the investing community what it sees from an operational point of view going forward," he said.

Downside: Mr. Carpenter maintained a "sell" rating and cut his price target to $1.85 from $2.15.

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Mainstreet Equity Corp. reported a strong fiscal fourth-quarter that highlights the real estate company's "attractive" valuation, said Canaccord Genuity analyst Shant Poladian. He calculates shares are trading at an 18 per cent discount to net asset value and believes that will be eliminated as Mainstreet's recovery in near-term occupancy rates and cash flow "provide strong validation of underlying value."

Upside: Mr. Poladian raised his price target to $26.75 from $21.50 and maintained a "buy" rating.

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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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