Tibor Kolley/The Globe and Mail
Media stocks got accustomed to being battered and bruised over the past few years, but with the economy growing again and the advertising market on the path to recovery, the sector is seeing renewed interest. The next few weeks are a particularly interesting time for Canadian media investors, as fourth-quarter results spill out for companies with fiscal years ending in August and third-quarter financials are released for those on the calendar year.
TD Newcrest analysts, in a research note today, said they believe the outlook for investment gains in certain media stocks is looking particularly good right now. "While we are not looking for any material surprises versus consensus, in our view this is an exciting time in this sector," said analysts Scott Cuthbertson ad Michael Elkins. "The vast majority of indicators are pointing to an advertising market that is recovering strongly and most operators trimmed their cost lines during the downturn, augmenting operational leverage."
Their top pick in the sector is Transcontinental Inc. , followed by Torstar Corp. and Corus Entertainment Inc. . While other businesses were in a defensive mode during the recent downturn, Transcontinental was investing heavily. The company's capital expenditures over the next couple of years are expected to be well under half of what they were in 2009 and 2010. Cash flow will increase dramatically over the next several quarters, reducing debt and paving the way for higher dividends, they said. "As we exit the recession, we believe the company is very well positioned to both take market share and reduce operating expenses."
Upside: TD Newcrest has a 12-month target of $19.00 on Transcontinental and recommends the stock as an "action list buy."
Surging cotton prices have prompted Gildan Activewear Inc. to raise prices by 7 per cent for the products it sells to the U.S. wholesale channel, which was higher, and implemented faster, than expected, said Desjardins Securities analyst Martin Landry. Gildan's customers were not provided with advance notice of the latest increase, so it's unlikely that they accumulated inventory ahead of the move, Mr. Landry said.
Upside: Mr. Landry maintained his buy rating and raised his target by $3 to $37 a share.
Exploration work near Fortuna Silver Mines Inc. 's San Jose silver-gold project in Mexico has potential to bear fruit in 2011, said Canaccord Genuity analyst Nicholas Campbell. Fresh from a site visit to San Jose, Mr. Campbell is now incorporating a 10 million-ounce potential resource.
Upside: Mr. Campbell raised his target by 50 cents to $5.50 and maintained his "speculative buy" recommendation.
Even though Texas Instruments Inc. reported modestly better-than-expected third-quarter revenues and earnings per share, Canaccord Genuity analyst Bobby Burleson is still urging caution on the stock. Distributors are increasingly worried about their inventory levels compared with historical norms and the company's guidance could prove to be optimistic, he said.
Downside: Mr. Burleson reiterated his "hold" recommendation and $25 price target on the stock.
Fortress Paper Ltd. should be able to deliver on aggressive discretionary capital expenditure plans, said TD Newcrest analyst Sean Steuart. The company's $91-million Thurso, Quebec, northern bleached hardwood kraft mill conversion to a specialty cellulose operation - a market that's seeing record high prices - is on track for completion by the third quarter of next year, he said.
Upside: Mr. Steuart hiked his 12-month price target by $6 to $48.
Darcy Keith