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As Sears shares sink, fresh doubts over turnaround

The second floor entrance to the Sears store at Upper Canada Mall in Newmarket, Ont.

Peter Power/Peter Power/The Globe and Mail

Inside the Market's roundup of some of today's key analyst actions

Sears Canada Inc. CEO Calvin McDonald says the pace of his turnaround plan is moving too slow -- and investors undoubtedly agree. Shares by late afternoon were down 8.7 per cent at $11.38.

The retailer posted a net loss of $21.9-million for the three months ended Oct. 29, halving its losses of $44.1-million a year ago. But that's not terribly impressive considering the year-ago period included a $45.6-million pretax charge related to clearing excess inventory and internal restructuring. Its revenues actually shrank in the latest quarter by $76-million from a year ago to $1.03-billion.

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The company has been trying to executive a turnaround that has included job cuts, slashed prices and decluttered stores. Mr. McDonald said today that "our plan is working, however our pace of execution has not met our expectations."

Desjardins Securities analyst Keith Howlett isn't so convinced about the "plan is working" part.

"It appears increasingly unlikely that management of Sears Canada will establish positive sales momentum before Target begins opening stores in Canada in March/April 2013," he wrote in a research note today.

"We expect Target to have a significant negative impact on Sears' apparel and accessories business, as well as on its home fashion and decor business. Additional pressure will come from 39 former Zellers stores that are reopening as Wal-Mart stores and from the recently announced combination of Leon's and The Brick."

Downside: Mr. Howlett rates the stock "hold" and has a $14 price target.

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C&C Energia Ltd. "is gaining some operational momentum," said CIBC World Markets analyst Ian Macqueen after the company reported cash flow in its latest quarter that was well above expectations. The company expects production to rise 9 per cent to 12 per cent next year, but the stock is only trading at 2.6 times 2013 cash flow and is going for well below its net asset value of $8.43 a share, he said.

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Upside: Mr. Macqueen upgraded the company to "sector outperformer" and raised his price target to $10 form $8.75.

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IBI Group Inc.'s dividend and cash flow may come under pressure after a weak third quarter that missed targets, CIBC World Markets analyst Paul Lechem said.

"IBI's business remains volatile and is impacted by economic conditions in its end-markets. We believe the business is set to weather the downturn but, with third-quarter results and added risk, we believe a dividend cut could be a possibility," Mr. Lechem said.

Downside: Mr. Lechem slashed his price target to $8.50 from $12.50 and his rating to "sector perform" from "sector outperform."

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McCoy Corp., whose third-quarter earnings outpaced expectations, represents "a compelling value proposition," according to Raymond James analyst Steve Hansen.

The energy services company is expanding capacity, upgrading its facilities and also actively seeking acquisitions, Mr. Hansen said, pointing out that McCoy has benefitted from strong demand in both North American and international drilling markets.

Upside: Mr. Hansen upgraded the stock to "outperform" from "market perform" and raised his price target by $1 to $5.

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CIBC World Markets analyst Adam Gill thinks Parallel Energy Trust will soon cut the size of its distribution to unitholders after the company's third-quarter production and cash flow came in below expectations. "At this time, we believe the trust would best be served by a distribution cut to have a more sustainable payout ratio. We forecast a cut to 5 cents a month," he said.

Downside: Mr. Gill downgraded the trust to "sector performer" from "sector outperformer" and cut his price target by 75 cents to $5.50.

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For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities

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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

Deputy head of Audience

Sonali Verma is deputy head of audience at the Globe and Mail. She is a business journalist with more than 20 years of experience, mainly in digital media.She was previously the Globe and Mail’s senior editor in charge of audience engagement, overseeing its homepages as well as social media operations. More

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