SERGEI KARPUKHIN/Reuters
Inside the Market's roundup of some of today's key analyst actions. This file will be updated during the trading day.
The recent decline in Potash Corp. of Saskatchewan Inc. shares provides "an attractive entry point for long-term, value-orientated investors, one that is notably backed by a solid 4.4 per cent dividend yield," said Raymond James analyst Steve Hansen.
"The most ominous clouds overhanging the potash sector are beginning to lift, even though the outlook remains opaque and any 'recovery process' is likely to be slow, in our view," Mr. Hansen wrote in a research note.
"Fortunately, the principal factors supporting these malicious conditions are now poised to fade," he said. "With a firm floor price now established, we expect sidelined buyers to promptly re-enter the market, providing a firmer bid and more accurate price discovery." More importantly, a rift within the potash cartel "is beginning to mend, raising the prospect of renewed marketing cooperation and the gradual return of pricing power."
Target: Mr. Hansen raised his rating from "market perform" to "outperform" and his target price from $30.00 (U.S.) to $37.00. The analyst consensus price over the next year is $32.73, according to Thomson Reuters data.
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The bumper grain crop that has strained Canada's transportation system will help fatten profits at the railways that move the commodity from elevator to port, Mr. Hansen said.
"We believe the [large size] of Western Canada's latest crop represents a tremendous opportunity for the Canadian rails," said Mr. Hansen, who is raising the profit estimates and share price targets for Canadian National Railway Co. and Canadian Pacific Railway.
The 2013 harvest of wheat, corn, canola and other grains was about 30 per cent larger than the year before, thanks to good weather. But the massive crop has clogged storage elevators and rail lines and left vessels waiting at West Coast ports as shippers complain the railways are providing poor service.
"Western Canada's 2013 crop was anything but typical," Mr. Hansen wrote in a research note.
While the railways say it's impossible to move such a large crop quickly, the grain industry figures it will take much of this year to ship last year's crop. For this reason, Mr. Hansen figures large grain shipments will provide a steady boost to the railways' earnings this year as they run longer trains and charge more to move non-regulated crops, particularly in the United States.
Grain represents 16 per cent and 7 per cent of CN and CP's traffic, respectively. Mr. Hansen said the railways have been performing, despite the harsh winter weather and complaints about grain service.
Target: Mr. Hansen raised CN's share price target to $68 from $66 with an unchanged rating of "outperform." The average price target of analyst surveyed by Bloomberg is $62.43. CP's share price target was raised to $184 from $180, with no change to the "outperform" rating. The Bloomberg average is $172.
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Canadian National Railway Co. shares look overvalued by as much as six to 12 per cent, said Canaccord Genuity analyst David Tyerman, noting that the stock is "trading at unusually high levels" and carries "some downside risk."
"We expect continued good results from CN in the fourth quarter of 2013 and 2014, powered by good volume increases, solid price increases and 0.5-0.7 per cent operating margin improvement," he wrote in a research note.
"Looking forward, we expect CN volumes to produce unusually good growth in 2014 from intermodal and auto business capture and strong crude-by-rail growth. We anticipate further margin expansion from operating leverage in 2014," he said. The weak Canadian dollar should also help earnings, he said.
Target: Mr. Tyerman raised his price target to $58 from $54.50 and rates the stock "hold." The average analyst consensus price over the next year is $57.82, according to Thomson Reuters data.
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Fortis Inc.'s decision to buy UNS Energy, a fast-growing, vertically integrated electric and gas utility holding company in Arizona, should add about 10 cents to earnings per share, said Desjardins Securities analyst Jeremy Rosenfield.
"While we see longer term upside to FTS's share price from the acquisition ($1–$2 Canadian per share), we expect near-term dilution and an overhang from the financing," he wrote in a research note, referring to $1.8-billion of new convertible debentures.
Target: Mr. Rosenfeld rates the stock "hold," with a target price of $34. The average analyst consensus price over the next year is $34.19, according to Thomson Reuters data.
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Credit Suisse analyst David Hartley expects Metro Inc. same-store sales growth to dip 0.5 per cent in the first quarter of 2014, with the retailer's gross margin decreasing as well.
The company may also address its "underleveraged balance sheet," he wrote in a research note. "Overwaitea, a 125-store grocery chain makes sense as an acquisition target, as do drug store chains, such as Rexall in Ontario/Western Canada, and Uniprix and Familiprix in Quebec. If an acquisition is not available, we expect a leveraging of the balance sheet to fund a share repurchase in the 1.1-times net debt/EBITDA range, which provides the business flexibility for future acquisitions, and cushion for any downside risk to profitability."
Target: Mr. Hartley rates the stock "neutral" and has a $65 target price. The analyst consensus price target for Metro. over the next year is $67.00, according to Thomson Reuters data.