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Precision Drilling shares rally as RBC upgrades stock

Workers at a Precision Drilling rig.

Nathan VanderKlippe/The Globe and Mail

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

RBC Dominion Securities' Kurt Hallead has joined the majority of other analysts who are recommending investors snap up shares of Precision Drilling Corp.

He upgraded the stock today to "outperform" from "sector perform," applauding the company's "fiscal discipline" in announcing its 2013 capital spending plans on Monday.

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Investors appear to be listening. Precision Drilling was one of the top performers within the S&P/TSX composite index today, closing up 4.4 per cent.

The driller has budgeted $485-million in spending next year, almost half of what it spent in 2012, as it prepares to reap the benefit of the $1.8-billion it has invested in upgrading and modernizing its rig fleet since 2010.

"Market share gains and margin-pricing advantages from these fleet investments versus its peers may act as potential catalysts in 2013," Mr. Hallead said in a research note. "We have raised our recommendation, as we see PD's upgraded rig fleet outperforming many of its peers, combined with its lower year/year capital spending profile contributing to potential multiple expansion in 2013."

Precision Drilling also took steps to attract income investors Monday, instituting a quarterly dividend of 5 cents per share, which would yield close to 2.6 per cent based on the current stock price.

Separately, Desjardins Securities analyst Jamie Murray said today that Precision Drilling Corp. is higher on his list of his preferred drillers. He cited the company's valuation, dividend yield and growth prospects.

"The company accelerated its transition to a pure high-performance driller, signed very favourable international contracts and initiated a small but not insignificant common share dividend," he said. "We view Precision's operational update released yesterday as remarkably consistent with its long-term strategy."

As we noted earlier here at Inside the Market, insider buying in oil and gas services equipment stocks has been soaring in recent weeks, even as share prices in the industry have been sliding. At the end of last month, there were more than 10 stocks in the group with key insider buying for every one with selling, according to INK Research.

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Upside: Mr. Hallead raised his price target by 50 cents to $10. The average one-year price target on the Street is $10.11, according to Bloomberg. There are 13 buy ratings on the stock, three holds and two sells.

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Lundin Mining Corp. released disappointing forecasts for all three of its fully owned mines for 2013 to 2015, noted Raymond James analyst Alex Terentiew.

"The guidance supports our main concern about the company -- the fact that it continues to have the lowest long-term production growth profile among its covered base metal peers, although we acknowledge that Lundin's lower capital expenditure reduces its susceptibility to cost inflation and, hence, reduces the chances of negative news arising from cost overruns," he wrote in a research note.

Downside: Mr. Terentiew lowered his target price to $5.50 from $5.75 and rates the stock "market perform."

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Loblaw Cos. Ltd.'s decision to spin most of its real estate assets into a Real Estate Investment Trust has a lot of positive implications for parent company George Weston Ltd., said CIBC World Markets analyst Perry Caicco.

"The REIT creation seems like another example of Weston exerting influence at Loblaw. Weston is clearly becoming more active in the Loblaw business and strategy, adn that should be good news for Wesston and Loblaw shareholders," he said.

Upside: Mr. Caicco raised his price target on George Weston to $76 from $68, and maintained a "sector performer" rating.

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Wi-LAN Inc. has launched litigation against Research In Motion Ltd. concerning a bluetooth technology patent. It follows several new lawsuits launched last week against existing defendants HTC, Apple and Sierra Wireless.

"The news is consistent with WIN's strategy to continue to apply pressure to defendants in the expectation that settlements can be reached before trials in 2013," commented Clarus Securities analyst Sean Peasgood. "These new litigations will have an immaterial impact on operating costs in the next several quarters."

Upside: Mr. Peasgood reiterated a "buy" rating and $7 price target.

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Uranium Participation Corp. has rallied since mid-November, as it appears that money is moving into more liquid and potentially stable companies within the uranium sector, said Dundee Securities analyst Dave Talbot.

While investors aren't gobbling up the positive developments in the uranium sector of late, including mine closings, mergers, project delays and signings of large contracts, there are signs that uranium prices may have bottomed. "U is sensitive to rising prices, and we interpret its recent strength due to its place as a potential leading indicator," he said.

Upside: Mr. Talbot reiterated a "buy, high risk" rating and $7.50 price target.

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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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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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