Author: Eric Lam

With estranged founder Eugene Melnyk selling off most of his remaining holdings in Biovail Corp. on Monday, it appears the Canadian pharmaceutical company is finally ready to move on with its new drug strategy.

The new focus on central nervous system (CNS) drugs, which had been opposed by Mr. Melnyk while he was still Biovail's largest shareholder, has at least one supporter in Marc Goodman with UBS.

"We continue to believe in Biovail's transition story which is still in its early stages," he said in a recent note. "We expect further multiple expansion for the stock as this transformation continues."

Mr. Goodman notes that the company's base business is stable with sustainable cash earnings in the US$2 a share range, paying a 3% dividend yield while investors wait for Biovail's transition to complete.

Meanwhile, Biovail is hiring a sales force ahead of the expected launch of its first new product, Staccato Loxapine. "Further, we believe that one of management's next deals will potentiall be to acquire a late stage product or two that will help leverage this sales infrastructure and drive further earnings upside," he said.

Mr. Goodman has raised his price target to US$20 from US$16, while maintaining a Buy rating for Biovail.

Eric Lam

There are not very many things in common between the start of this decade and the start of the '90s: parachute pants, for one, are no longer quite the fashion statement they once were.

The early '90s, of course, was also the period that saw a war in Iraq, a
charismatic Democrat replace a Bush in the White House, and divisive health care reform. Sound
familiar?

Looking for more similarities, the team at RBC Capital Markets has decided to compare the current post-recessionary U.S. banking environment with that of a similar period between 1990 and 1994, in a series they are calling "Bank to the Future" — with no apparent apologies to Marty McFly.

"We believe the 1990-94 banking environment has many similarities to today's environment," the note said. "The 12-month recovery in bank stock prices from their February 2009 lows is very similar to the 12-month recovery from the lows reached in October 1990."

Carried forward, the team extrapolates upside potential of about 50% for banks over the next 18 months.

"The advance will be driven by an improvement in credit quality and increased merger and acquisition activity," they said. 

The team also notes that price-to-book ratios between the two time periods are very similar: 1.25 times in the present versus 1.26 times in 1991.

Banks that will benefit from credit improvement include Associated Banc-Corp., Boston Private Financial Holdings Inc., KeyCorp, and Webster Financial Corp. Banks that could become "dominant franchises" include PNC Financial Services Group Inc., TCF Financial Corp., State Street Corp., U.S. Bancorp and Wells Fargo & Co.

Considering Billy Ray Cyrus has somehow managed to be popular in both 1990 and 2010, perhaps there is something to this particular comparison.

Wouldn't hold your breath on the parachute pants though.

Eric Lam

With Agrium Inc. finally giving up on its stubborn pursuit of U.S. competitor CF Industries last week, analysts are starting to forecast the sky to clear and the clouds to part for Agrium's surging shares.

Brian MacArthur with UBS has raised his price target for Agrium to US$83 from US$72.

"Agrium's decision to terminate its bid for CF removes a substantial overhang on the shares," he said in a note Friday. 

Mr. MacArthur had previously used a debt number that factored in the bid risk for CF, but has now swtiched to actual debt figures along with upward revisions in potash margin assumptions and urea volumes, resulting in a new target price.

"Agrium's reluctance to pay what in its view would have been a dilutive bid for CF is a strong indication of the disciplined nature of this management team," he said.

Mr. MacArthur maintains a Buy rating for Agrium.

Eric Lam

In a pair of notes on Friday, analyst Vince Valentini with TD Newcrest has upgraded his rating for Telus Corp. and downgraded rival BCE Inc.

Mr. Valentini has been impressed with BCE's performance since he resumed coverage of the company in December 2008, but warned its results "will likely be tough" to sustain and has dropped the stock to a Hold and $34 target.

In that time period, BCE has seen its stock rise to almost $31 from $22 and raised its dividend 19%.

"Unfortunately, with such a strong performance relative to peers … we can no longer justify a buy rating on the stock," he said. Downside risk is limited though as the balance sheet remains strong and the yield is attractive at 5.6%.

Mr. Valentini also suggested BCE shares could head north of $40 if M&A activity escalates.

"However, we are not including takeover potential … and we believe there is an offsetting risk that BCE could be a buyer of assets, thereby absorbing short-term dilution," he said.

As for Telus, Mr. Valentini has upgraded the stock to Action List Buy status, and raised his target price to $47 from $40.

"The math on T.A shares is relatively straightforward in our view, but the key to the call is predicting whether or not the company will come through on the execution of improved results, which should in turn lead to relative multiple expansion," he said. "Unfortunately, if we wait to see hard evidence of these improvements, the stock will likely be much higher."

Mr. Valentini expects sluggishness in the first three quarters of 2010, but said the upswing is coming in the fourth quarter and will move into 2011.

He cites various factors including timing of new contracts, launch of new HSPA devices such as the iPhone, video ramp-up, and the fact that Darren Entwistle, chief executive with Telus, has decided to take his compensation in stock, a definite vote of confidence.

Eric Lam

Gold miner Semafo Inc.'s success in West Africa has impressed Scotia Capital, which recently initiated coverage on the company.

Leily Omoumi, analyst with Scotia Capital, gave Semafo an initial Outperform rating with $6 target price in a note to clients.

"Semafo, in our opinion, has transformed into a meaningful player in the region of West Africa with the successful commissioning, ramp-up, and exploration program at its flagship asset, Mana, in Burkina Faso," she said. "We believe Mana, aside from its current steady production, presents a signficant resource growth opportunity with both underground and near-surface exploration potential."

Ms. Omoumi expects the Mana mine, which opened in 2008 and is the largest active gold site in the country, to account for 70% of the 250,000 ounces of gold she forecasts Semafo to produce in 2010.

As well, Semafo began exploring underground mining at Mana in 2009, and based on the results Ms. Omoumi estimates 840,000 ounces of gold at 3.20 grams a tonne for the site.

However, the company's other projects in Niger and Guinea both pose political risk. Ms. Omoumi is more concerned about the Kiniero site in Guinea, which is Semafo's smallest operation at 20,000 ounces. She figures the mine has 3.5 years of life left in it, as Semafo is "weighing its options" and committments to the country.

Cosmos Chiu with CIBC World Markets Inc. also praised Semafo's handling of the Kiniero project.

"Semafo has done well in focusing on its strategic objectives in 2010 while, at the same time, exercising financial discipline in the management of operations," he said in a note Wednesday.

As well, there will likely be an upside surprise to Semafo's production in 2010 as its guidance has been "conservative," he said. Mr. Chiu rates Semafo a Sector Outperformer with a target price of $7.50. 

Scotia's $6 target price implies a return of 17%.

Eric Lam

For a company like Research in Motion Ltd., just being good isn't good enough for analysts anymore.

The BlackBerry maker is scheduled to release its next quarterly results at the end of March, and Phillip Huang with UBS is expecting a strong showing. Doesn't necessarily mean he's particularly high up on the company though.

"We expect upside in the quarter … however, we believe investor sentiment is already anticipating earnings and guidance strength which, in our opinion will require more material upside surprise for further upward share price momentum," he said in a note to clients Wednesday.

Otherwise, Mr. Huang's estimates are largely in line with RIM's own forecasts for the quarter. The company's guidance indicates revenues of $4.2-billion to $4.4-billion, while Mr. Huang has pegged it at $4.29-billion. Consensus is $4.3-billion.

EPS figures from RIM are between $1.23 and $1.31, while both UBS and the street estimate $1.27 a share. And both RIM and Mr. Huang figure gross margins will stay at 43.5%.

"RIM has also historically managed expenses well relative to guidance, which could also be a benefit," he said.

Mr. Huang admitted his concerns were largely with the coming August quarter.

A possible new iPhone from Apple in June, seasonal slowdowns and potential movement from Palm in the U.S. market all point to downward pressure for RIM in the quarter, he said.

He estimates sales of $4.18-billion and EPS of $1.18, versus consensus of $4.46-billion and $1.25.

Mr. Huang maintains a Neutral rating and $72 target price for RIM.

Eric Lam

If GPS maker Garmin Ltd. wants to get consumers away from Google's free mapping services, it will have to make more deals like the one it did on Monday with 3D mapper Intermap Technologies.

Now, by 3D we don't mean Avatar 3D. Think Toy Story 3D. 

Terms of the deal were not disclosed, but analyst Jeff Rath with Canaccord Adams said it is considered a win for Denver-based Intermap.

"Garmin is the largest [original equipment manufacturer] of these products in the world," he said.

Investors liked the move enough to drive shares in the company up as much as 18% to $1.90 in morning trading on the TSX, although the stock had returned to the $1.75 level by Monday afternoon.

Shares in Garmin were initially up slightly but the stock had declined 1.17% to US$35.49 on the NASDAQ by mid-afternoon as well.

Mr. Rath does not consider the move a gamechanger for Garmin. Rather, it's another step in its continuing battle with Google and other free mapping services available online.

"Google's free offerings put pressure on Garmin to differentiate," he said. "Garmin needs to continue investing in the best databases and products."

Intermap has been developing 3D bird's eye view maps of the United States and Western Europe through its NEXTMap database. These 3D maps will start popping up in Garmin products in Europe within the next 60 days, Brian Bullock, chief executive with Intermap, said in an interview.

"It was the European activity we had that opened the door for us," he said. "They said, you have data for Europe, and we want Europe."

Mr. Bullock said Garmin will not need to modify its existing products, which allows for the quick move to market. He expects Intermap mapping to expand to Garmin's North American lines in 2011.

Mr. Rath has a Hold rating and $39 target for Garmin. As for Intermap, with which Canaccord has an investment banking relationship, Mr. Rath has a Speculative Buy rating and $5 target on the company.

Eric Lam

This is image of Morrison, CO, just west of Denver, seen using
orthorectified radar, digital surface and terrain imaging. According to
the company, if you squint really hard you can see dinosaur tracks.
(Image: Intermap Technologies)  

The good folks at Abercrombie & Fitch Co. (freakishly attractive models included) will never admit to it, but the one great hope for their salvation in the U.S. market is Knight Rider demigod David Hasselhoff, an analyst says.

Paul Lejuez with Credit Suisse has already used the Hoff as a parallel for Abercrombie & Fitch's changing fortunes in the United States, noting "a person/brand can be popular in other parts of the world despite losing favour in the U.S.," in a February note.

We're looking at you, Germany.

In any case, in a sequel analysis to clients Friday, Mr. Lejuez now compares A&F's February rebound in same-store sales of +5% (well ahead of the industry consensus of -6%) to the former Baywatch Nights star's revitalization as a judge on America's Got Talent.  

"If it is possible that Mr. Hasselhoff's career could teach us anything else, it's that just when you thought your star had completely faded in the United States along comes America's Got Talent … in simple terms, Hasselhoff lives!" he said. "For A&F, similar to Mr. Hasselhoff, although the relatively small month of February is not proof that it has reclaimed its former domestic status, it is an indication that the brand is not dead."

While February is a shortened month, and the uptick was likely driven by promotions, these are still good signs to Mr. Lejuez as it indicates there is still value in the brand itself.

"The ability to drive traffic to the store with promotions shows that its pricing strategy has been the culprit in preventing customers from shopping the stores," he said.

Mr. Lejuez maintains an Outperform – Volatile rating with a target price of US$49 for the company.

He also now forecasts same-store sales of +5% to +7% for March, and has increased his estimates for 2010 EPS to US$1.84 from US$1.78.

Meanwhile, the rebound also continues for Mr. Hasselhoff, who has agreed to a 10-episode deal with A&E for a new reality show featuring his two daughters.

"What better way to reclaim his former glory?" Mr. Lejuez said.

Eric Lam 

Even Cameco Corp., the biggest player in the uranium industry, cannot escape recent weaknesses in the mineral's spot price.

Fraser Phillips, analyst with RBC Capital Markets, has downgraded Cameco to Sector Perform with above average risk from Outperform while lowering his price target to $32 from $35, citing declining uranium prices.

Since the beginning of the year, uranium spot prices have dropped $4 a pound, approacing the $40/lb low-water mark of the past four years. 

"Notwithstanding the benefits of Cameco's uranium contract portfolio, we forecast a drop in EPS from $1.49 in 2009 to $1.16 in 2010, and only a modest increase to $1.20 in 2011 based on our revised uranium price forecasts," he said in a new note to clients.

For 2010, Mr. Phillips has dropped his estimated price to $44.50/lb from $50/lb. And for 2011, he now estimates the going rate of uranium to be $55/lb, down from $60/lb.

Continuing work at Cameco's Cigar Lake mine in Saskatchewan and a new report expected in the first quarter of 2010 could serve as upside catalysts for the share price, but Mr. Phillips does not see any major acquisitions in Cameco's pipeline.

He is also still positive on the company's long term upside, citing Cameco's strong balance sheet and developing free cash flow.

Eric Lam 

The coming year for Research in Motion Ltd. looks to be a good one as users are likely to replace their handsets with newer models, an analyst says in a new note.

Peter Misek with Canaccord Adams estimates product shipments for the company will rise to 50 million units from 45.2 million units during the year. This will also bump up revenues for the Waterloo, Ont.-based company to US$19.24-billion from US$18.4-billion.

"We expect that a meaningful device refresh cycle among enterprise users will drive higher-than-expected device shipments," he said.

Mr. Misek maintains a Buy rating while raising the target price to US$100 from US$95.

Eric Lam

General Motors has suddenly made popping up on the cover of Barron's a much riskier proposition.

Jeffrey Yale Rubin with Birinyi Associates found that after GM graced the cover of the Dow Jones weekly on June 2, 2008 with the headline "Buy GM," the company's stock has fallen 97%. Of course, GM also had to file for creditor protection a year later, almost to the day.

This is all a roundabout way for Mr. Rubin to warn investors that the cover for the current March 1 edition of Barron's, which declares "GM is back!" and could return with an IPO this year, should probably be taken with a grain of salt.

Clearly the only way out from under this developing curse now is for GM chief executive Edward Whitacre to simultaneously appear on the covers of Sports Illustrated and the next Madden game.

After all, what else could possibly happen?

Eric Lam 

Bombardier Inc. said it had picked up a US$3.06-billion order for 40 of its new CSeries aircraft from U.S.-based Republic Airways Holdings Thursday, a move that could get the ball rolling on further contracts from other carriers, a note from CI Capital Markets says.

Scott Rattee with CI called the a "catalyst" for other negotiations involving the CSeries.

"We believe this order validates the CSeries as a strong competitor in the single-aisle mainline market," he said in a note Friday. "We would not be surprised to see additional orders forthcoming in the near future."

Bombardier management has said they are in negotiations with more than 60 carriers, Mr. Rattee said.

The order will reduce some of the risks associated with the project, including whether or not Bombardier can deliver the aircraft on time, he said. 

Mr. Rattee has raised his target price on Bombardier to $7.50 from $7, while maintaining an Outperform rating on the company.

Eric Lam

Tim Hortons Inc. will be reporting its fourth quarter results on Thursday, and at least one analyst is forecasting some solid numbers and a dividend increase.

Irene Nattel, with RBC Capital Markets, expects a 10% increase in divdend payouts to 44 cents a share, about 25% of the company's 2009 earnings-per-share rate of $1.76. 

"Historical evidence confirms that companies that pay rising dividends consistently outperform those that pay stable or no dividends," Ms. Nattel said in a note to clients. 

Also, Tim Hortons is expected to launch a stock repurchase program in March, worth about $200-million.

"Tim Hortons has a strong record of acting upon its buy-back," she said. The company is currently on track to repurchase about 5.7 million shares, worth $172-million before March.

As for the results, Ms. Nattel expects same-store sales to strengthen to 3% from 2.7% over the first nine months of the year on price increases and unseasonably warm weather in Ontario.

Revenues are forecast at $616.4-million, up 9% compared with 2008. Earnings-per-share of 51 cents is a 10% increase on 2008 and in line with consensus.

RBC has a rating of Outperform – average risk and a price target of $38 for Tim Hortons.

Eric Lam 

A bloody military coup is "potentially positive" for uranium prices, a note from Edward Sterck with BMO Capital Markets says. 

"Tensions have been high" in the African country of Niger since its president, Mamadou Tandja, dissolved parliament to stay in office, he said. Mr. Tandja has since been kidnapped by soldiers with the Supreme Council for the Restoration of Democracy, after a pitched gun battle through the streets of capital city Niamey ending at the presidential palace.

"Whilst military coups are not new to Niger, a possible risk is that the country's new leaders might be tempted to interfere with uranium production or place extra demands on producers," Mr. Sterck said. "Market uncertainty may result in a boost to the spot price of uranium if nervous utilities move to increase inventories."

Most of the current production is managed by Areva, a French energy company that is in the process of investing 1-billion Euros into a third mine in Niger. The company's mines have survived the many previous coups and two rebellions in the country.

Eric Lam

Favourable statistics for paper company Domtar Corp. has a Raymond James analyst floating the possibility of a dividend reinstatement later on this year.

Daryl Swetlishoff called Domtar a "compelling" free cash flow story, with an Outperform rating and $75 target price.

January statistics showed shipments up 3% year-over-year while overall demand was up 5.5%, while inventories were down 12% compared with the previous year. 

"We expect incrementally tighter markets," he said in a note to clients.

He also expects the company to meet its core goal of reducing debt to $1-billion from $1.4-billion on $320-million in biofuel tax credits along with $40-million of asset sales.

As a result, there is the possibility of a suggested dividend reinstatement in the second half of 2010, with a $1 a share divdend implying a 2% yield at a cost of $43-million.

Eric Lam

At a recent event in Barcelona, Research In Motion Ltd.'s co-chief executive Mike Lazaridis unveiled a new BlackBerry browser. The software, which comes without a snazzy secret code name but nevertheless promises to be a revelation, certainly impressed Mike Abramsky with RBC Capital Markets.

"It appeared to us fast and robust, able to handle complex websites, while maintaining RIM's security and bandwidth efficiency upgrades," Mr. Abramsky said in a note.

Expecting delivery of the new browser to BlackBerrys in the summer, he was not surprised that RIM did not make a heavier marketing push, likely to "minimize impacts to sales momentum" and avoid any lulls in the channel ahead of launches later in the year.

"Timing affirms one of several pending catalysts as part of our upgrade thesis, and likely portends a strong back half of devices and services that take advantage of the new browsing experience," he said.

Mr. Abramsky maintains a Top Pick rating for RIM, calling it a rare opportuniy for investors to buy into the company with upside catalysts ahead.

Eric Lam 

Barring any ties, it is safe to say that the ratio of silver to gold medals at the Vancouver 2010 Olympics will be 1:1. However, the ratio of global reserves of silver to gold is about 8.5:1 and the silver to gold production ratio is apprximately 9:1.

Analysts at Canaccord Adams note that since the 1970s, the average price ratio for silver versus gold has been about 65.5:1. Today, that ratio is 70.7:1.

Canaccord goes so far as to point out that the silver to gold ratio in an average lululemon anti-bacterial spandex garment is approximately 10,000:1.

"Although we are confident the Olympic medal and global reserve ratios are fairly reliable, we really have no idea how much silver or gold occurs in lululemon garments," the analysts said. " As such, we instead discuss the direction of the market price of silver versus that of gold."

The price of silver has dipped 18% since Jan. 19, 2010, while gold has risen 4%. This has pushed the gold to silver ratio up 17% to 70.7:1. Since 1975, this ratio has averaged 65.5, Canaccord noted.  Since September 2006, it has averaged 59.2. 

An estimated 400,000 tonnes of silver is held in global reserves compared to just 47,000 tonnes of gold (a ratio of 8.5:1), and 21,400 tonnes of silver was produced in 2009, versus 2,350 tonnes of gold (a ratio of 9.1:1).

Therefore, simply looking at abundance and production, Canaccord suggested that at a gold to silver price ratio of more than 70:1, silver is undervalued relative to gold. However, this conclusion does not take into account the demand side of the equation.

"Clearly, based on the pricing ratio of these metals, there is more demand for gold than silver on a proportionate basis to supply. Gold is widely viewed as a currency, is relied on as a hedge against inflation, and benefits from a flight-to-safety mentality during times of economic uncertainty." Silver may share some of those characteristics, but it does not appear to have the same demand profile as gold does.

As a result of differing demand profiles, the analysts say they would expect the gold to silver ratio to be high during periods of economic uncertainty and low industrial growth and low during periods of economic stability and relatively high industrial growth.

Comparing the ratio with the Institute for Supply Management (ISM) Purchasing Managers Index (PMI), which measures American manufacturing growth, the gold to silver ratio and the ISM index generally display an inverse correlation. This comes as little surprise given that a high ISM index reading implies general manufacturing and economic growth, which would increase industrial silver demand. "Conversely, a low ISM reading implies economic stagnation and potential uncertainty, which could increase gold demand given that a flight-to-safety mentality can influence investors during such times," Canaccord said.

Through the fourth quarter of 2009 and into this year, the gold to silver ratio has increased, and so has the ISM. However, historical trends show this doesn't happen for extended periods. As a result, Cannacord expects to see a reversal in either the ISM reading or the gold to silver ratio at some point.

Jonathan Ratner