Manulife facing headwinds

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Manulife Financial Corp. could face some headwinds in the months ahead, TD Newcrest analysts warn, with the protracted low interest rate environment not helping matters. The analysts dug into the U.S. Long-Term Care Insurance (LTCI) market, in which Manulife is the second largest insurer. Their conclusion: Manulife will take a charge in the $842-million to $962-million range to recalibrate reserves given the uncertainty about profitability in that segment. That's in line with management's suggestion that a charge could exceed its quarterly adjusted earnings expectation, in the $700-million to $800-million range, but TD Newcrest is concerned the charges won't end there. "After speaking with competitors, consultants, regulators, and MFC's management, we are no more comfortable with the outlook for the U.S. LTCI market and would not be surprised if further charges were to materialize," TD said. TD Newcrest also said that interest rates could be lower than they initially expected through 2011, especially in the United States.

Downside: TD Newcrest analyst Doug Young lowered his 12-month target price on the stock to $15.50 from $17.00, while maintaining his cautious near-term outlook and hold rating.

Gold prices have been striking fresh-all time highs in recent days and analysts at TD Newcrest believe the bullion bull run may be far from over. It's all about strong fundamentals not losing their grip: Central banks are likely to remain net buyers, investment demand remains robust, there are limited prospects for new gold mine supply, and inflationary pressures may build as the U.S. economic picture improves.

Upside: TD Newcrest forecast gold prices will average $1,300 (U.S.) an ounce in 2011 from $1,214 this year, before rising to an average of $1,400 in 2012. "We project a long-term price of US$1,000/oz, based on our view that higher gold prices will be required to justify the development of the next generation of large gold mines," TD Newcrest said.

SNC-Lavalin Group Inc. may no longer outperform other names in the sector, said National Bank Financial this morning. Since the onset of the Great Recession, the engineering stock has outperformed the S&P/TSX, Stantec Inc. and IBI Income Fund by a wide margin, although it lagged GENIVAR Income Fund slightly when distributions are taken into account. But National Bank says in the context of a North American economic stabilization and recovery (even if it's a tepid one) yesterday's laggards (Stantec and IBI) could outperform yesterday's winners (GENIVAR and SNC).

Downside: National Bank downgraded SNC-Lavalin to "sector perform" from "outperform" and upgraded both IBI and Stantec, to highlight the superior rebound potential of IBI and Stantec.

San Gold Corp. may face lower grades than expected at its Rice Lake complex in Manitoba, said CIBC analyst Barry Cooper in a research note Monday. Following a visit to the mine in August, CIBC analysts expect higher dilution given the complexities of the veins. "These expectations serve to lower our overall estimate for a recovered grade over the next two years, leading to higher operating costs," the note said.

Downside: Cooper lowered his price target to $4.75 from $6.00.

Brookfield Office Properties Corp.'s portfolio and capital structure should benefit from improving property fundamentals and capital markets, said CIBC analyst Alex Avery. Recent and expected declines in cap rates on high-quality office property over time could boost Net Asset Value to $21.00 per share at a 5.75 per cent cap rate, versus a new view of $18.00 NAV at a 6.25 per cent cap.

Upside: Avery raised his price target to $21.00 a share from $16.50 and raised his expectation to "Sector Outperformer."

Parkbridge Lifestyle Communities Inc. is being acquired by British Columbia Investment Management Corp. for $7.30 a share, notes National Bank Financial analyst Jimmy Khing Shan. This represents a 30 per cent premium over the Oct. 1 closing price of $5.60 a share. Mr. Shan said CAP REIT and Equity Lifestyles are other logical bidders but he doesn't see another bid emerging.

Upside: Mr. Shan increased his target on the stock to $7.30 from $6.30 to match the offer price and is recommending tender.