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Canadian National Railway (DOUG WOJCIK/Doug Wojcik/AP)
Canadian National Railway (DOUG WOJCIK/Doug Wojcik/AP)

Eye on Equities

Downgrades for CN Rail, Transat Add to ...

Canadian National Railway Co. shares have been on a relatively steady climb throughout the year and have reached the point where CIBC World Markets Inc. analyst Jacob Bout believes investors should be more cautious before buying in.

He downgraded the stock to “sector performer” from “sector outperformer,” but points out he still likes the stock and continues to rank it as a top pick in the sector.

Year-to-date, CN has posted carload growth of 7 per cent over 2010, as it made headway in taking more market share, and long-term fundamentals in the industry remain strong, he commented.

It’s just that the stock is reaching his 52-week price target and may be running out of fuel for the moment.

“CN's push towards improved customer service, combined with its class-leading operating efficiency, is a competitive advantage over its peers,” said Mr. Bout, adding that its network has proven it can handle fluctuations in volumes.

Downside: Mr. Bout maintained an $85 price target.

CIBC World Markets Inc.’s Kevin Chiang has downgraded Transat A.T. Inc. to “sector performer” from “sector outperformer.” Mr. Chiang cited “uncertainty facing the company,” ranging from increased competition, volatile demand, and other “macro headwinds affecting leisure travel demand.” He’s concerned about the travel company’s winter strategy in competing in the already crowded sun destination markets, commenting that Transat “no longer appears to be in control of its own destiny.”

Downside: Mr. Chiang cut his price target to $14 from $15.50.

Related: Transat profit climbs

Related: My favourite free-cash-flow stars

Risks are growing that Western Potash Corp. may not be able to finance its multibillion-dollar Milestone mine, warned Wellington West Capital Markets Inc. analyst Robert Winslow. Industry giant BHP Billiton has announced a further $488-million in investment in its Jansen potash project in Saskatchewan, and Mr. Winslow believes “Western Potash’s prospects are increasingly challenged as greenfield mine resources become more scarce with the larger, well-financed competitors securing the equipment, logistics capacity, and labour needed to bring new production to market.”

Downside: Mr. Winslow downgraded Western Potash to “underperform” from “market perform,” but raised his price target by 10 cents to $1.35 as he tweaked his estimates for the mine’s size and operating costs.

Market sentiment is turning increasingly positive towards Avid Technology Inc. amid signals that more professionals will migrate from Apple’s unpopular new version of Final Cut Pro to Avid’s Media Composer, noted Brigantine Advisors analyst Barbara Coffey. While Adobe may aggressively try to capture these non-linear editing users, its suite of video products is largely untested and Avid stands to gain the most business, she said.

Upside: Ms. Coffey upgraded Avid to “buy” and raised her price target by $2 to $22.

Open Text Corp. has bought business process management provider Global 360 for $260-million (U.S.), “a solid strategic acquisition” according to Versant Partners analyst Tom Liston. He believes Global 360 will complement Open Text’s acquisition of Metastorm from earlier this year. “We anticipate strong cross-selling opportunities with the current Open Text customer base,” he said.

Upside: Mr. Liston maintained a one-year price target of $78 (U.S.), with a “buy” rating.

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