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Shaw's main office building in Calgary (TODD KOROL/Todd Korol/Reuters)
Shaw's main office building in Calgary (TODD KOROL/Todd Korol/Reuters)

Eye on Equities

Shaw's cable potential under-appreciated: Scotia Add to ...

It's been a tumultuous time over at Shaw Communications Inc., given the fierce competition in the cable and wireless sector, its $2-billion acquisition of CanWest and the replacement of its chief executive officer. And then there's the challenge of getting its crucial wireless network off the ground; last week, the company announced it would be delayed until 2012.

Shaw's quarterly results last week illustrated the problems facing its core cable business. It lost 7,542 customers in its fiscal first quarter, perhaps because of aggressive customer acquisiton by Telus, and the company's cable pricing is under pressure.

But despite all these worries, Scotia Capital Inc. likes the company's pospects. Analyst Jeff Fan said investors should own the stock because of the contribution to revenues the CanWest acquisition can bring, plus the future opportunity the wireless arena presents. The company has also been increasing its dividend, and its earnings per share trends are looking favourable.

"We believe the Canadian cable potential is under-appreciated by the market," Mr. Fan said in a note to clients today. "There is too much focus on basic subscriber trends and not enough on the big picture, such as the ability for cables to more than offset TV subscriber loss with Internet and phone subscriber growth and the resulting beneficial mix shift."

While Shaw trades at a valuation premium, he believes this is justifed by its growth and cash flow margin.

Mr. Fan maintained a "sector outperform" rating and a target price of $26. As you can see here, he's not alone on his upbeat assessment; six analysts surveyed by Zacks Investment Reseach rate the stock as a "strong buy," more than double just three months ago. Seven rate it as a "hold."

Wi-LAN Inc.'s settlement with Intel Corp. on Friday involving patent-infringement lawsuits is a "large de-risking" event for the broadband wireless technology stock, said Canaccord Genuity analyst Eyal Ofir. He believes the deal will pave the way for other settlements with other firms such as Apple, Acer and Motorola.

Upside: Mr. Ofir upgraded his recommendation to "buy" from "speculative buy" and hiked his price target by $1.50 to $9.

FirstService Corp. has successfully repositioned its Colliers International division and - thanks to acquisitions - has reaccelerated its corporate growth, said Raymond James Ltd. analyst Frederic Bastien. The recovering global economy has also brightened the company's prospects, he said.

Upside: Mr. Bastien raised his rating to "outperform" from "market perform" and raised his six- to 12-month price target by $9 (U.S.) to $36.

Paladin Labs Inc. has closed a deal to assume $77.2-million in ProStrakan's debt in exchange for an exclusive license to the U.K.-based specialty pharma company's products for emerging territories. TD Newcrest analyst Lennox Gibbs said the transaction will be immediately accretive to Paladin's earnings and could mean medium-term gains to the company's operating revenues and strategic positioning.

Upside: Mr. Gibbs hiked his price target by $7 to $36.

Viterra Inc. should report solid fourth-quarter results on Wednesday thanks to high grain prices and better volumes, said Wellington West Equity Research analyst Robert Winslow. He noted that Canadian grain exports rose 10 per cent year over year and southern Australia farmers moved 300 per cent more wheat in the quarter, as farmers aimed to capture rising grain prices.

Upside: Mr. Winslow upgraded the stock to "strong buy" and hiked his target price by $4 to $14.

Forbes and Manhattan Coal Corp. , a producer of thermal coal and anthracite in South Africa, is well positioned to benefit from a strong global coal market and economic expansion in China and India, said Canaccord Genuity analyst Gary Lampard. Mr. Lampard noted his forecast models use a relatively low valuation multiple for the company because of political risks.

Upside: Mr. Lampard initiated coverage with a "buy" recommendation and 12-month target price of $6.50.

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