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Transcontinental shares seen undervalued ahead of earnings

Transcontinental Inc. shares have been on a downward trajectory this year, off about $2 since the printing and media company in early March reported flat first-quarter earnings but higher revenues.

Despite a current yield of more than 3 per cent, many investors are giving Transcontinental a pass as the print industry is out of favour right now - not too mention the growing concerns about the state of the U.S. economy.

But CIBC World Markets Inc. analyst Robert Bek believes the shares are now undervalued, and expects the company will pleasantly surprise the Street when it releases second-quarter financials on Wednesday.

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"Overall, we expect to see another solid but modest quarter from TCL, with print revenues continuing to show modest improvement, aided by contract wins," he said.

Revenues rose 4 per cent in the first quarter and he sees this modest growth continuing, along with a "very slight pick-up" in margins year-over-year. He's forecasting earnings per share of 47 cents, up from 42 cents a year ago and ahead of the consensus forecast of 44 cents.

"Notwithstanding poor tone for the space, TCL is a strong operator, with a very focused strategy and the discipline required to generate above-average returns in this maturing industry and return cash to shareholders," he said.

Upside: Mr. Bek rates Transcontinental as a "sector outperformer" with a price target of $19.


Production at Aurizon Mines Ltd.'s Casa Berardi project missed expectations in the first quarter due in part to lower grades and restrictions on equipment availability. But Desjardins Securities Inc. analyst Brian Christie believes operations are turning around at Casa Berardi after a tough start to the year and is encouraged by the exploration potential at that and other Quebec mines.

Downside: Mr. Christie cut his price target by 50 cents to $8.50 and reiterated a "buy" rating.

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North American Energy Partners , a provider of construction and infrastructure services, reported weaker-than-expected fiscal fourth-quarter results and faces a number of lingering headwinds going forward, including poor weather and work delays on the Horizon oil sands project, said Raymond James Ltd. analyst Ben Cherniavsky. "We now expect fiscal 2012 to be a year of transition rather than a year of recovery and growth, which means that there is no urgent need for investors to own this stock right now," he said.

Downside: Mr. Cherniavsky downgraded the stock to "market perform" from "outperform" and maintained his $9 price target.


Production from Lake Shore Gold Corp. "is likely to sound better than the financial delivery," warned CIBC World Markets Inc. analyst Barry Cooper. While it's a growing producer with exploration potential, its multiple ore sources may lead to the construction of multiple mills, jacking up capital expenses, he said.

Downside: Citing a weak first quarter, Mr. Cooper lower his production estimates for the company, resulting in his price target going to $4.50 from $5.25.

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Bird Construction Inc. reported weaker-than-forecast first-quarter earnings amid disappointing earnings and margins. Raymond James analyst Frederic Bastien doesn't expect things to get better in a hurry, given that any large jobs the contractor lands in Alberta's industrial north - its most profitable market - will take some time to impact its financial results.

Downside: Mr. Bastien lowered his price target by $1.50 to $11.50 and maintained a "market perform" rating.


Follow Darcy Keith on Twitter for more of the latest analyst actions from the Street and exclusive investing news from The Globe and Mail.

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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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