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Buying opportunity emerges in Lululemon, CAE: analysts

Lululemon Athletica Inc. beat Street forecasts as it reported an impressive 77 per cent surge in second-quarter profit on Friday. But investors hardly cheered, sending its shares down nearly 4 per cent for the day - and the stock is still below where it was trading before the results last week.

Investors were spooked by a shift in its guidance as economic headwinds pick up. It now predicts low- to mid-teen same-store sales gains in the third quarter, rather than the 20 per cent lift it reported in its second quarter, which ended July 31.

RBC Dominion Securities Inc. analyst Howard Tubin suggests investors may be fretting a bit too much.

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Lululemon has a history of being particularly conservative in its guidance. For the last six quarters, the company exceeded the high end of its quarterly guidance when reporting results, he notes. In the meantime, product demand is showing few signs of slowing down and margins are particularly strong as full-priced selling of products remains robust.

"Second-quarter results at LULU were among the strongest we've seen from any company this reporting season," Mr. Tubin said in a research note. "While the shares trade at a high multiple, we don't see any fundamental reason for Friday's selloff and we'd be buyers."

Upside: Mr. Tubin raised his price target by $7 to $60 and maintained an "outperform-average risk" rating.

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CAE Inc. shares lost considerable altitude since reporting disappointing quarterly results in early August, and the stock is now underperforming peers on a year-to-date basis, notes Desjardins Securities Inc. analyst Benoit Poirier. He upgraded CAE to a "buy," commenting that "while the timing of an idea entry point is hard to predict, we believe there is less downside from current levels."

Upside: Mr. Poirier maintained a $14 price target.

Related: Analysts turn cautious on CAE amid military spending cuts

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Related: Aerospace contracts boost CAE results

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Enbridge Inc.'s plans to build a twin pipeline in Alberta along the route of its existing Athabasca pipeline could generate 8 cents per share in additional earnings once fully operational in 2015, said Desjardins Securities Inc. analyst Pierre Lacroix. But Mr. Lacroix is advising investors not to accumulate more shares as they trade at a premium to other large-cap Canadian energy infrastructure firms.

Upside: Mr. Lacroix raised his price target by 75 cents to $31. CIBC World Markets Inc. analyst Paul Lechem increased his target by $1 to $33.

Related: Enbridge to expand Athabasca pipeline

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Barrick Gold Corp. has several megaprojects such as Cerro Casale and Donlin Creek in development, but Dundee Securities Corp. analyst Paul Burchell is most encouraged by the potential for significant, previously unrecognized reserve and production growth at existing operations. He's skeptical of the political and economic viability of some of the projects, but "internal growth" should be able to make up for any of them not seeing the light of day.

Upside: Mr. Burchell raised his price target by $7 to $67, with a "buy-medium risk" rating.

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Progress Energy Resources Corp. has received an independent resource evaluation for a portion of its Foothills Montney lands in British Columbia, "a significant development as it confirms the sizeable resource base required to substantiate the development of a 20-plus year liquefied natural gas facility," said Canaccord Genuity analyst Steve Toth. He believes it increases the chances of a long-term partnership with Petronas, the Malaysian national oil company that also has interests in the region.

Upside: Mr. Toth upgraded his rating to a "buy" from "hold" and raised his price target by $1 to $16.50.

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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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