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Analyst downgrades Potash Corp. to sell, calls stock rebound 'unwarranted'

Potash Corp.’s head office in Saskatoon. The U.S. Securities and Exchange Commission has charged a former Banco Santander SA executive and a former Spanish judge with insider trading over a proposed takeover of Potash Corp of Saskatchewan Inc. on which the Spanish bank had given investment banking advice.

DAVID STOBBE/REUTERS

Inside the Market's roundup of some of today's key analyst actions. This post will be updated with more analyst commentary during the trading day.

Cantor Fitzgerald analyst Peter Prattas has downgraded Potash Corp. of Saskatchewan to "sell" from "hold," calling the recent share price rebound "unwarranted."

Potash Corp. shares have risen 16 per cent off their Aug. 2 low, he notes, recovering about half of their drop since the July 30 announcement that Russia's Uralkali BPC was withdrawing from one of the world's most important potash marketing alliances. The cartel-like breakup led to speculation that potash prices will come under significant pressure given Uralkali would be free to sell more potash with less pricing discipline.

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But the stock price has recently rebounded, encouraged by reports that Russian oligarch Suleiman Kerimov may have to sell his 21.7 per cent stake in Uralkali. Investors were hoping the sale would ease tensions between Uralkali and Belarus state potash producer Belaruskali, possibly leading to a renewal of their pact.

"We believe this optimism will be short-lived with potash prices continuing to spiral downward," Mr. Prattas said in a research note. "While various news reports in recent days point to the prospect of a resolution, much more will be needed to end the Belaruskali-Uralkali dispute any time soon," he said.

"Pricing data has not been encouraging, a lack of demand response could soon become the greater concern and production cost per tonne will only increase with lower production."

He reduced his 2014 earnings per share estimates to $2.38 from $2.67 given expectations for lower selling prices of its potash.

"The market appears to be largely pricing in the prospect of a resolution. Upside from here would likely be modest even with a restoration of pricing discipline as the sector is unlikely to return to its historic valuation premium," he added.

Target: Mr. Prattas slashed his price target to $31 (U.S.) from $36.

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Transat A.T. Inc. enjoyed a 6 per cent jump in its share price Thursday after the travel company reported earnings that blew past Street expectations, but Canaccord Genuity analyst David Tyerman thinks the stock is just getting warmed up. He raised his price target today all the way to $17.75, from $10, meaning he expects shares to almost double within the next year. The stock is trading up 1 per cent this morning at $10.

"We continue to recommend buying Transat to benefit from a substantial profit rebound from capacity discipline and cost reduction efforts," Mr. Tyerman said in a research note this morning. "Capacity discipline is generating substantial profit gains as unit revenue gains resulting from the discipline are exceeding revenue losses from the lower capacity."

Transat's fiscal third-quarter results marked the fifth straight quarter of improvement, with earnings per share of 80 cents almost double the Street consensus, as the company benefited from capacity reductions and cost cutting.

The company intends to continue the capacity control and cost-cutting efforts in the fourth quarter, and it expects break even results in the first quarter of fiscal 2014. For Transat, that's a big accomplishment, because it usually reports a loss during that period when travel demand is weak.

Mr. Tyerman isn't the only one boosting targets. Raymond James analyst Benoit Poirier raised his price target on the stock to $15 from $11.

"Transat reported its best-ever results yesterday morning," Mr. Poirier commented. "In light of management's positive outlook, we are increasing our target."

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Lululemon Athletica Inc.'s troubles with see-through fabric and inventory flow are behind it, says Credit Suisse analyst Christian Buss, who has upgraded the yoga-wear maker to "outperform" from "neutral."

Vancouver-based Lululemon, which has still not named a new chief executive officer, faced a $17-million (U.S.) writeoff over the recall of its luon stretch pants that customers complained were too sheer. Excluding the charge, the company's quarterly results reported on Thursday are strong, and growth in revenue and profit should resume, Mr. Buss said in a note on Friday.

New-store sales are the highest in five quarters, and online revenue is up by 35 per cent to make up 14 per cent of the company's total, Mr. Buss said.

Target: Mr. Buss upgraded Lululemon to "outperform" from "neutral" and maintained a share-price target of $78 (U.S.).

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Desjardins Securities says the 12-per-cent drop in BRP Inc. shares from their 52-week high makes the maker of Ski-Doos, Sea-Doos and all-terrain vehicles a "buy."

A recovering U.S. economy and expansion into new markets on top of better margins at the company's Mexican factory present strong growth prospects for the Valcourt-Que.-based firm that went public in the spring, analyst Benoit Poirier wrote in a research note.

"BRP is expected to introduce new products for 2014 [personal watercraft and ATVs] on Sept. 15-16 in Orlando, and we believe that innovation will remain a key component of BRP's strategy," Mr. Poirier said of the company that was spun off from Bombardier Inc. in 2003.

BRP, which posted earnings per share of 7 cents (Canadian) in the second quarter, went public at about $21 and trades around $26. "BRP is a compelling growth play in the power-sports market."

Target: Desjardins maintained a "buy" rating with a price target of $32.

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BMO Nesbitt Burns analyst Dan Salmon said his "channel checks" from the advertising community remain positive for Facebook Inc., encouraging him to significantly boost his stock price target on the social networking giant.

"We believe Facebook is set up for three key catalysts: (1) Adding more video ad products to the platform, (2) turning on advertising at Instagram, and (3) leveraging the 88-100 million users on the platform during US prime time TV hours through social TV ad products," Mr. Salmon said in a research note.

Target: Mr. Salmon raised his price target to $50 (U.S.) from $37 and reiterated an "outperform" rating.

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In other analyst actions today:

Jefferies cut its target on Apple Inc. to $425 (U.S.) from $450.

Jefferies upgraded Intel Corp. to "buy" from "hold" and raised its price target to $30 (U.S.) from $27.

Canaccord Genuity raised its target on Transcontinental Inc. to $11.90 from $9.40 and maintained a sell rating.

Evercore Partners upgraded Verizon Communications Inc. to "overweight" from "equal weight" with a $53 price target.

Credit Suisse upgraded Safeway Inc. to "outperform" from "underperform" and raised its price target to $34 from $26.

BMO Nesbitt Burns cut its target on Empire Co. to $79 from $84 and reiterated a "market perform" rating.

M Partners cut its price target on Brick Brewing Co. Ltd. to $1.75 from $2.

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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

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