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Procter & Gamble cost-cutting plan earns a buy rating

A customer reaches for a bottle of Tide detergent, a Proctor & Gamble product, at a Target Department Store in Florida in this file photo.

Phil Coale/AP

Canaccord Genuity analyst Alicia Forry has initiated coverage on Procter & Gamble Co., saying it is in the early stages of the "most significant transformation the company has ever attempted."

The analyst has a "buy" rating with a target of $87 (U.S.) a share on household products giant that makes everything from Tide detergent to Gillette razors and Pampers diapers. "The valuation gap remains well below historic levels, and we believe the stock should close that gap in coming months," she said in a report.

The company's decision a year ago to launch a wide-ranging $10-billion cost-savings program, which was "long overdue in the eyes of investors," reflected a realization that the company could not longer compete effectively on the global stage, the analyst said.

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The market has been reluctant to rewards P&G's shares for its cost savings program and has been "choosing to dwell instead on management's past mistakes," she wrote. But the company has laid out an "ambitious restructuring program that will overhaul the way the company manages its suppliers, overheads, R&D, factories and logistics," she said. "While the company is admittedly a few years late to the restructuring game, we can see no compelling reason for Procter's plan to fail."

P&G, which had been cutting profit forecasts, has been under pressure to improve its performance after activist investor William Ackman of Pershing Square Capital Management LP bought a one-per-cent stake in the company. After P&G last month reported a second-quarter profit that soared past expectations, the company appears to be going in the right direction.

"Procter benefits from a strong portfolio of brands, a good track record on cash generation and a history of high quality innovation," Ms. Forry wrote. "Despite an optically lower exposure to emerging markets than some peers, Procter is actually the largest household and personal care products company by sales in those markets with China its No. 2 market overall after the United States. A new focused corporate strategy combined with the cost savings should accelerate sales and earnings growth rates."


Finning International Inc.

The Despite overall market uncertainties, "Finning remains our favourite heavy equipment stock," said Desjardins Securities Benoit Poirer. "We see solid upside potential to the current share price given the potential improvement in Canadian margins and the company's strong backlog."

Upside : The analyst, who maintains his "buy" rating, raised his target by $2 a share to $34.

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Equity Financial Holdings Inc.

With the sale of its transfer agent and corporate trust business to TMX Group Ltd., Equity Finanical will become a pure-play alternative mortgage lender, said M Partners analyst Adam Seanor. The divestiture will allow the lender to accelerate growth plans, he said.

Upside : He raised his rating to a "buy," and his target to $11.60 a share from $8.50.


CAE Inc.

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Canaccord Genuity analyst David Tyerman reduced his price target on the flight simulator and training company because of its weaker military business. The civilian business is still strong and improving, he said.

Downside: He cut his target by $2 a share to $12.50, but maintained his "buy" rating


Cliffs Natural Resources Inc.

RBC Dominion Securities analyst Fraser Phillips slashed his price target on the global miner after it reported weak fourth-quarter results and also cut its quarterly dividend.

Downside : The analyst, who has a "sector perform" rating, cut his target by $6 (U.S.) a share to $34.

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