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Analyst urges caution after Empire reports solid quarter

Empire Co. Ltd. reported on-target quarterly results this week, with both Sobeys and other businesses performing well. Same-store sales grew a respectable 1.7 per cent.

But CIBC World Markets Inc. analyst Perry Caicco cautions challenges lie ahead, as consumers are becoming increasingly tight-fisted when it comes to buying groceries and the cost savings that arise from a strong Canadian currency are starting to dissipate.

"The outlook for material gross margin improvements at Canadian grocers is dim," Mr. Caicco said in a research note. "The year-over-year Canadian dollar advantage is not large enough to hold off product cost increases and consumers have become addicted to promotions."

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Add to that another problem for Sobeys: growth in square footage through new stores and expansions is expected to rise above the growth in grocery consumption starting in 2012.

Cost controls at the company are strong, although Mr. Caicco commented that cost inflation in the quarter was higher than he had expected.

Upside: Mr. Caicco trimmed his price target by $1 to $75 and maintained a "sector outperformer" rating.

RBC Dominion Securities Inc. analyst Nelson Ng sees Brookfield Renewable Power Fund benefiting from plans to merge its power plants with those of Brookfield Asset Management Inc. . "We believe the proposal is attractive, providing BRC.UN unitholders with geographic diversification, higher distributions, and project development upside," Mr. Ng said.

Upside: Mr. Ng raised his price target by $2 to $26 and maintained an "outperform" rating.

Stantec Inc.'s stock is in "deep value territory," given that the engineering consulting firm is financially stable and well diversified, as well as having the benefit of significant exposure to regions and industries that are still expanding, said Raymond James Ltd. analyst Ben Cherniavsky. Its 2011 price-to-earnings ratio is well below the peer group, and now almost equal to the lowest multiple that the stock hit in the panic of 2008, he said.

Upside: Mr. Cherniavsky maintained an "outperform" rating but trimmed his price target to $27 from $33.75 to reflect the deteriorating macroeconomic environment.

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At current levels, an investment in Nordion Inc. should offer attractive returns, particularly for income-seeking investors looking for exposure to the Canadian health-care sector, said Desjardins Securities Inc. analyst Pooya Hemami. The company, which provides medical isotopes and pharmaceutical contract research, reported higher revenues and earnings than the Street had been expecting for the third-quarter.

Upside: Desjardins upgraded the stock to a "buy" from "hold" and maintained a $10.50 (U.S.) price target.

Kiska Metals Corp. has released "encouraging" initial results from a drilling program at the Island Mountain area of its Whistler project in Alaska, noted Raymond James Ltd. analyst Bart Jaworski. "We continue to recommend buying shares of KSK on our view of significant exploration upside and comfortable cash position," he said.

Upside: Mr. Jaworski maintained a "strong buy" rating and $1.50 price target.

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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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