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Reborn AbitibiBowater seen as outperformer

AbitibiBowater Inc. is back on trading screens once more after a 21-month hiatus in creditor protection - but it's undergone quite the metamorphosis. With considerable work done strengthening its balance sheet and slimming down its production portfolio, it's not the same old newsprint company anymore. And at least one analyst suggests investors may not want to delay grabbing hold of the stock, which began pre-trading Dec. 10 on a "when issued" basis and started regular trading today.

RBC Dominion Securities Inc. analyst Paul Quinn, in a research note today, says the extent of the company's transformation is not widely understood and shares are being offered at an attractive valuation.

AbitibiBowater is currently trading at 4 times his forecast for 2011 earnings before interest, taxes, depreciation and amortization (EBITDA). That looks inexpensive next to its peers, which are going for between 4.8 times to 6.4 times.

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The new AbitibiBowater offers considerable exposure to the stabilizing North American newsprint and commercial paper markets, and has leverage to growing offshore markets as well, Mr. Quinn notes. While the company shuttered 20 per cent of its pre-bankruptcy capacity, it remains a leading producer of North American newsprint, with a 37 per cent market share. "We expect the company will use its scale and very strong financial flexibility to manage paper supply to match demand, support prices and improve margins," Mr. Quinn said.

Add to this the fact that the company has eliminated $5.8-billion (U.S.) in debt, sold $940-million in assets and has negotiated more favourable labour and pension agreements.

Upside: Mr. Quinn initiated coverage with an "outperform, above average risk" rating and a $29 (U.S.) price target.

Suncor Energy Inc. is forecasting a 13 per cent compound annual growth rate in production through 2014 and 8 per cent through 2020. While this "impressive" growth will also come with higher capital expenditures, spending will still only be a reasonable 80 per cent of cash flow going forward, said CIBC World Markets Inc. analyst Andrew Potter.

Upside: Mr. Potter hiked his price target by $2 to $45.

Agnico-Eagle Mines Ltd. has bumped up its dividend and announced successful exploration results. But RBC Dominion Securities Inc. analyst Michael Curran said these positive factors are offset by a new five-year mine plan that involves higher cash costs and capital than he earlier modelled.

Downside: Mr. Curran cut his price target by $8 to $93 (U.S.) a share

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Ivanhoe Mines Ltd. has priced a strategic rights offering aimed at raising $1.2-billion (U.S.). The offering, which will give each shareholder one transferable right for each share owned, will result in greater-than-expected dilution, according to Desjardins Securities Inc. analyst John Redstone.

Downside: Mr. Redstone reduced his one-year target price to $27.45 (Canadian) from $29.30 but maintained his "buy-speculative" recommendation.

Consolidated Thompson Iron Mines Ltd. has secured a new $250-million (U.S.) credit facility that will provide greater financial flexibility to pursue production growth, including the completion of the Bloom Lake expansion project, said TD Newcrest analyst Craig Miller. He expects the company to post solid operating cash flows over the next two years.

Upside: Mr. Miller hiked his target price by $1.50 (Canadian) to $16.

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About the Author
Investment Editor

Darcy Keith is The Globe and Mail's Investment Editor. He has been a business journalist since 1992 and joined the Report on Business in 2010 from Yahoo! Canada, where he was the senior editor of finance. More

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