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Desjardins hikes RBC target after IFRS restatement

Royal Bank of Canada on Friday became the first of the Canadian banks to provide detailed restatements under International Financial Reporting Standards (IFRS). The revisions from the previously disclosed financial statements under Canadian Generally Accepted Accounting Principles weren't substantial, noted Desjardins Securities Inc. analyst Michael Goldberg.

For fiscal 2011, continuing diluted earnings per share was restated 2 per cent higher to $4.54, while continuing quarterly EPS saw no substantial changes.

"As expected, the transition to IFRS adds immaterially to Royal's EPS, with a similar immaterial impact expected for the other banks," Mr. Goldberg said in a note. "It does not change our investment thesis on Royal, but it does allow for a modestly bigger dividend increase in fiscal 2013."

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Upside: Mr. Goldberg raised his price target by $1 to $59 and maintained a "hold" rating.

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Canadian Pacific Railway Ltd.'s new 10-year agreement with marketing consortium Canpotex to transport potash does little to improve the stock's outlook due to CP's loss of exclusivity over Cantopex's product, according to Desjardins Securities analyst Benoit Poirier.

Rival Canadian National Railway Co. announced Monday that it had signed a 10-year deal of its own with Canpotex, which will see it haul product for export via its southern British Columbia line.

CN and Canpotex will also collaborate on the feasibility of a potential new potash export terminal in Prince Rupert, B.C., which would be served by CN over its northern B.C. line.

Downside: Mr. Poirier believes the contract renewal will have a neutral to slightly positive impact on CP shares. He is reiterating his "hold" rating and $70 (Canadian) target price.

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Citing a 30 per cent run up in its share price over the past six weeks, Raymond James Ltd. analyst Rafi Khouri has downgraded Petrominerales Ltd. to "market perform" from "outperform."

"We note that potential material catalysts lay ahead for PMG, in particular the drilling, currently under way, of two high-impact exploration wells at Bromelia (Block 25 on the Llanos Foothills) and La Colpa (Block 126 in Peru), with initial results expected as early as February," Mr. Khouri said in a note. "At this time, however, we believe the risk to the company's current valuation to be more heavily weighted to the downside than the upside."

Downside: Mr. Khouri maintained a $21 price target.

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Longer-term investors who are willing to sit through a few more "messy" quarters should buy shares in Finning International Inc. , argues Raymond James analyst Ben Cherniavsky. Finning's Canadian operations need to repair its once strong and proud culture and market-leading presence, and he is confident that Andy Fraser, the newly appointed president of Finning (Canada), is the person to do so.

"The resurrection of the "New Finning" is underway and over time Finning (Canada) will deliver the bulk of the related upside to consolidated earnings," he said.

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Upside: Mr. Cherniavsky raised his price target by $3.50 to $32 and maintained an "outperform" rating.

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Mercer International Inc. has announced a €40-million expansion at its Stendal pulp mill in Germany aimed at increasing pulp production and energy generation capacity. "We take a positive view of this announcement as it increases Mercer's utility-like revenue stream from energy production, complementing the company's more volatile pulp revenues," commented Raymond James analyst Daryl Swetlishoff.

Upside: Mr. Swetlishoff raised his price target by $2 (U.S.) to $10 and maintained an "outperform" rating.

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About the Authors
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

Streetwise editor

Jody White is the web editor for Streetwise. He previously worked as a senior editor at Canadian Business Online and has written for MoneySense Magazine, Maclean's, the National Post and other national publications. More

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