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Street places good odds on Progress Energy takeover succeeding

Ottawa’s decision to block the purchase of Progress Energy by Malaysia’s Petronas immediately reminded investors of previous high-profile deals in Canada that fell apart amid government or regulatory scrutiny

BAZUKI MUHAMMAD/REUTERS

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

CIBC World Markets analyst Jeremy Kaliel has hiked his price target on Progress Energy Resources Corp., gaining confidence that Petronas of Malaysia could ultimately be successful in acquiring the Calgary-based company even after Ottawa's initial rejection.

The firms announced plans Monday for keeping the takeover alive by extending the so-called outside date on their deal to Nov. 30, with room to further stretch the deadline. After the outside date, either side can kill the $6-billion deal.

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"We believe that formal extension of the acquisition arrangement reaffirms Petronas' willingness to make additional concessions to acquire Progress if necessary, and .... improves the likelihood that the deal will be approved," Mr. Kaliel said in a research note.

He raised his price target by $1 to $20. But that's still shy of the $22 per share bid, reflecting the fact that the deal still has its challenges.

Among them, Petronas and Progress face an important deadline with Ottawa. The government refused to approve their union Oct. 19, but gave Petronas 30 more days to prove the deal is of "net benefit" for Canada. Petronas and Progress are working with the government in hopes of winning Industry Minister Christian Paradis' approval.

Others on the Street also seem to think the deal has a good chance of succeeding. The average target among analysts is $21.08, according to Bloomberg data. That's a little above Tuesday's closing price of $19.89 and way above the $12 range it was trading at early this summer before the deal was announced.

Eleven of 13 analysts who follow the stock, including Mr. Kaliel, rate it as a hold or its equivalent.

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TransCanada Corp.'s decision to partner with PetroChina Co. to build a 900,000 barrel-per-day pipeline in the oil sands is being applauded by CIBC World Markets analyst Paul Lechem. "This announcement is positive, as it illustrates TransCanada is building out its oil pipeline business beyond Keystone," he said. He estimates that it will contribute 10 cents towards earnings per share when it's expected to be fully in service in 2017.

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Upside: Mr.Lechem raised his price target by 50 cents to $46 and maintained a "sector performer" rating.

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BMO Nesbitt Burns upgraded Norbord Inc. to "market perform" from "underperform" after the wood-based panel producer beat analysts' earnings expectations. The company is benefiting from higher prices thanks to a jump in demand from the recovering U.S. housing sector, as well as industry discipline not to restart halted production capacity.

Upside: BMO analyst Stephen Atkinson raised his price target to $23.50 from $15.

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BMO Nesbitt Burns analyst Gordon Tait initiated coverage on Twin Butte Energy Ltd. with an "outperform" rating, contending that the high-yielding heavy oil developer has a lower risk profile than many of its peers. The company is targeting modest annual production and is well funded through next year from internally generated cash flow, he said.

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Upside: Mr. Tait set a price target of $3.50.

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The time to buy Teck Resources Ltd. is now, urged Raymond James analyst Alex Terentiew as he initiated coverage with an "outperform" rating. He believes weakness in coal prices has created an attractive entry point given the stock's current low valuations. Meanwhile, he notes most of Teck's producing assets are in safe jurisdictions and the company's copper production could double by 2022.

Upside: Mr. Terentiew set a $40 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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About the Author
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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