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Canada's life insurance companies start reporting their third-quarter results in less than a month. Be warned: the numbers are unlikely to be pretty.

The plunge in both interest rates and stock markets is expected to have eaten up capital in the July-to-September period, including at Manulife Financial Corp. . Even though it has embarked on hedging programs to help offset the impact, the hedges only go so far and come with added costs.

Canaccord Genuity analyst Mario Mendonca today reduced his 2012 estimated earnings per share for Manulife by 14 per cent, and cautioned that the company could possibly raise debt and/or issue preferred shares at some point in 2012 if markets remain very volatile.

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The company issued new equity after the 2008 market freefall to shore up its capital levels and also slashed its dividend in half.

Some may argue that Manulife's stock, which has plunged from above $19 in February, fully reflects these concerns and it may be time to go bargain hunting. But Mr. Mendonca isn't so convinced.

"While we can see the temptation to upgrade the stock on the expectation that rates "have to move higher," the same argument could have been made at various times over the last several years," he said in a research note today. "We also believe that an argument around MFC's 'attractive' valuation is not convincing given the potential for core profitability to move noticeably lower."

Downside: Mr. Mendonca cut his price target on Manulife by $1.50 to $13.50. He favours Industrial Alliance Insurance and Financial Services Inc. , thanks in part to its lower capital uncertainty and more balanced risk profile. But he also reduced his 2012 EPS estimates for IAG and cut his price target to $39 from $43.


Appointing Domenic Pilla as Shoppers Drug Mart Corp.'s new CEO should be the right prescription to get investors to buy the stock, said RBC Dominion Securities Inc. analyst Irene Nattel. While not a high-profile executive, Mr. Pilla - who had headed drug distributor McKesson Canada - is a "very promising CEO who understands the challenges of operating a pan-Canadian retail operation, has deep knowledge of the challenges and opportunities in Rx, and is well known within the industry," she commented.

Upside: Ms. Nattel maintained an "outperform" rating and $47 price target.

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Canaccord Genuity analyst Phil Skolnick still sees risks pertaining to Talisman Energy Inc.'s production targets after the company late Tuesday lowered its full-year estimates by the equivalent of 15,000 barrels of oil per day. Weather-related issues in North America and maintenance problems in the North Sea were behind the shortfalls and they have not been completely resolved, he notes.

Downside: Mr. Skolnick cut his price target by $2 to $21 (U.S.) and maintained a "hold" rating.

Related: Talisman lowers full-year production forecast


Despite sluggish consumer spending and the possibility of a truncated NBA season, there are few signs that demand for athletic footwear is running out of momentum, said Canaccord Genuity analyst Camilo Lyon. Citing "solid" sales checks at Foot Locker Inc. , he raised his third-quarter earnings per share estimates for the company to 40 cents from 37 cents.

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Upside: Mr. Lyon reiterated a "buy" rating with $28 price target.


The Street was largely impressed with Jean Coutu Group (PJC) Inc.'s second-quarter results, but Desjardins Securities Inc. analyst Keith Howlett downgraded the stock to a "hold" from a "buy." He cited recent share price appreciation as the main reason, but also expects second-half fiscal 2012 results for its generic drug manufacturing business to be below-year-ago levels due to recent regulatory changes.

Upside: Mr. Howlett maintained a price target of $12.50.

Related: Jean Coutu profit climbs 53%

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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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