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The Open Text building in Waterloo, Ont. (Kevin Van Paassen/Kevin Van Paassen/The Globe and Mail)
The Open Text building in Waterloo, Ont. (Kevin Van Paassen/Kevin Van Paassen/The Globe and Mail)

Eye on Equities

Analyst love-in for Open Text builds Add to ...

Open Text Corp. saw a slew of analyst upgrades in early February after the Canadian business software maker released better-than-expected fiscal second-quarter results - and they're at it again today as they look toward what the third quarter will bring.

Open Text will report results one week from today and there are encouraging trends emanating from tech firms south of the border that have already reported results for early 2011.

"Our checks have indicated continued strength in the IT spending environment, which has been further confirmed by commentary out of Oracle and yesterday's IBM results," said Canaccord Genuity analyst Eyal Ofir. "We recommend investors maintain exposure to enterprise software companies such as Open Text as an improving top-line growth profile should translate into higher margins, greater earnings and a potential for expanding valuation multiples."

Analysts have another reason for being bullish. Open Text has closed its acquisition of business process management vendor Metastorm, a smaller competitor that the company hopes will bolster its mobile credentials.

CIBC World Markets Inc. analyst Stephanie Price commented that Metastorm appears well positioned within that growing market, while National Bank Financial analyst Kris Thompson predicts the acquisition will contribute about $9-million to Open Text's third-quarter revenue.

Upside: Canaccord's Mr. Ofir raised his price target by $10 (U.S.) to $70; CIBC's Ms. Price raised her target by $9 to $69; and National Bank's Mr. Thompson - who sees potential for an upside surprise in third-quarter earnings - reaffirmed his target at $70.


Old Man Winter was in a sour mood in the first quarter across Western Canada, blanketing the Rockies with heavy snowfall and numerous avalanches. And now, the melting of all that white precipitation is bringing considerable flooding to the Canadian Prairies and U.S. Midwest.

It adds up to continued headaches for the major rail carriers, which also have to contend with the big surge in fuel prices. While railways can pass along rising fuel costs through surcharges, there is often a lag that can create a bumpy ride.

Canadian Pacific Railway Ltd. shipments were hit particularly hard this winter, given the regions it serves, although Canadian National Railway Co. - whose stock held in relatively better over the last few months - didn't escape unscathed.

So should investors keep their distance from the railways as the flooding season plays out and fuel costs quite possibly climb even further? Quite the contrary, argues Steve Hansen, analyst with Raymond James Ltd. He upgraded CN today to "outperform" and nudged up CP to "strong buy," believing those with their eyes on the more distant horizon will be rewarded.

"Because these events do little to impair our long-term positive outlook on both carriers, we argue the recent pullback in CN and CP shares represents a solid entry point for investors, trading at just 13.2 times and 11.9 times our respective 2012 earnings per share estimates," said Mr. Hansen.

Upside: Mr. Hansen raised his CN target price by $7 to $80, but maintained his $74 target on CP.

Related: Oil's rise spurs CN downgrade

Related: UBS turns more bullish on CN Rail

Quadra FNX Mining Ltd. reported lower copper production than expected in the first quarter, but announced an initial resource estimate for its Victoria project in Sudbury that was bigger than what was modelled by TD Newcrest analyst Greg Barnes. He also sees upside potential for the stock once the company announces a partner for its Sierra Gorda copper project in Chile, expected by mid-year.

Upside: Mr. Barnes upgraded the stock to a "buy" from a "hold" and raised his price target by $1.50 to $19.

Production at Taseko Mines Ltd.'s Gibraltar mine was hampered in the first quarter by adverse weather conditions and an unplanned maintenance shutdown. While analysts are disappointed by lower-than-anticipated copper production, they note expansion plans at Gibraltar remain on track.

Downside: CIBC World Markets Inc. cut its price target by 20 cents to $6.50 and Canaccord Genuity trimmed its target by 25 cents to $6.75.

Extorre Gold Mines Ltd. has announced the discovery of a new high grade, near-surface zone at its Cerro Moro gold-silver project in Argentina. This may "represent a potential game-changing catalyst, and we liken the situation to the Mariana Central and Norte discoveries made by Andean Resources last year that we believe precipitated bids for the company from Goldcorp and Eldorado Gold," said TD Newcrest analyst Daniel Earle.

Upside: Mr. Earle raised his price target by $2 to $12.


Follow Darcy Keith on Twitter for more of the latest analyst actions from the Street and exclusive investing news from the Globe and Mail

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