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CN Rail (Andrew Vaughan/Andrew Vaughan/The Canadian Press)
CN Rail (Andrew Vaughan/Andrew Vaughan/The Canadian Press)

Eye on Equities

UBS turns more bullish on CN Rail Add to ...

While shares of Canadian Pacific Railway Ltd. continue in the doldrums following the company's profit warning last week, rival Canadian National Railway Co. is trading just pennies away today from a new 52-week high.

This tale of two rail carriers on different tracks is continuing, with UBS analyst Tasneem Azim issuing a new bullish view on CN today that maintains the company offers "low risk exposure to high-quality growth."

CN shares have appreciated about 13 per cent since early November and currently trade at 15 times price-to-earnings based on Ms. Azim's 2011 estimates. That may seem a bit lofty, but she suggests there's still some "wiggle room" given that CN has traded as high as 17 times price-to-earnings based on consensus estimates.

As experienced at CP and other peers, harsh winter conditions likely hampered operations in the first quarter, with volumes and operating ratios taking a hit. But Ms. Azim believes CN fared well relative to peers, and on an annual basis, volume and revenue should see growth of 2.4 per cent and 6.6 per cent, respectively.

Over the next three years, she expects average earnings growth of 13 per cent and below mid-single digit volume growth and adds there is "upside risk" to her volumes estimates based on mine expansions from key coal customers and the potential for CN to secure a portion of Saskatchewan's potash exports.

Upside: Ms. Azim raised her price target by $4 to $80 and maintained a "buy" rating. That's modestly higher than the median price target of $77 based on 16 analysts tracked by Capital IQ.

Franco-Nevada Corp. reported fourth-quarter earnings in line with forecasts last week while announcing a 60 per cent hike in its monthly dividend. TD Newcrest analyst Greg Barnes believes the company can generate 84 per cent revenue growth by 2015 while enjoying low-risk exposure to some of the world's best gold trends. The company's royalty stream business model also protects it from the cost inflation that's arising from higher labour and energy costs.

Upside: Mr. Barnes reaffirmed his $42 price target.

Claude Resources Inc.'s fourth-quarter earnings missed the mark amid lower-than-expected gold sales. But Desjardins Securities Inc. analyst Brian Christie isn't discouraged, commenting that the company's active exploration of several projects this year should lead to increased reserves and resources.

Upside: Mr. Christie hiked his price target by 25 cents to $3.30.

Now that the political upheaval in Egypt has settled down, investing in TransGlobe Energy Corp. may be less risky. Canaccord Genuity analyst Frederick Kozak notes the company continues to work on its Nukhul formation oil discovery in eastern Egypt and has added to this core area with its acquisition of the West Bakr concession.

Upside: Mr. Kozak raised his price target to $20.25 from $19.50 and maintained his "buy" rating.

Schnitzer Steel Industries Inc. may surprise the Street with better-than-expected earnings when it reports its second-quarter results on Monday, suggests Canaccord Genuity analyst Eric Prouty. He cited the strong increase in nonferrous scrap prices, early benefits from recent acquisitions and further gains in sales volumes thanks to investments in new sorting systems.

Upside: Mr. Prouty reiterated his "buy-best idea" rating and $80 (U.S.) price target.

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