DragonWave poised to gain after AT&T deal

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As AT&T Inc. prepares to face regulators over its proposal to buy T-Mobile USA from Deutsche Telekom AG, one company emerges as the clear winner from the transaction: DragonWave Inc.

The wireless equipment-maker is likely to gain as Sprint Nextel and Clearwire Corp. are forced closer together as a result of the acquisition, said Canaccord Genuity analyst Eyal Ofir.

"DragonWave would be a major beneficiary of any agreement between the two companies and a capital infusion into Clearwire enabling the company to continue its network build," Mr. Ofir wrote in a research report.

Sprint and DragonWave are likely to resolve a pricing dispute within a few weeks, he said. "In our view, a resolution here would remove a major hurdle and would be the first step prior to increased support from Sprint and a potential cash infusion into Clearwire."

Upside: Mr. Ofir has a $10 (U.S.) target price on DragonWave and rates it a "speculative buy."

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Attention, income investors: Yellow Media Inc.'s dividend payments are not in danger in 2011 and 2012, said TD Newcrest analyst Scott Cuthbertson.

"YLO should be able to continue to pay its $0.65 (Canadian) dividend from free cash flows in both years," Mr. Cuthbertson wrote in a research report.

"With that said, non-operational items such as acquisitions, divestitures, one-time cash charges etc. could potentially put pressure on both the company's ability to completely fund its dividends through free cash flow and the achievement of recently articulated debt-reduction goals."

"Our forecasts and, we believe, consensus as well appear to indicate an ability for YLO to both continue to pay its current $0.65 dividend and meet the minimum debt-reduction goals set by S&P to preserve its investment-grade rating."

Upside: He has a $5.50 target price on the stock and a "hold" rating.

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Air Canada's profitability is under pressure because of higher fuel costs arising from conflict in the Middle East, Raymond James analyst Ben Cherniavsky said.

"Oil prices have, of course, been on a tear for a while now. Up to this point, it has been our view that the airline sector would be able to withstand this headwind by raising prices," he wrote.

But airfares have been either plateauing or declining for the past two months, and Air Canada has been cutting available seat miles to offset fuel costs, Mr. Cherniavsky points out.

"Last year we very clearly preferred Air Canada's shares over WestJet's," he wrote. "We now advocate owning WestJet shares over Air Canada because we believe that they are a 'safer' investment at this—less certain—stage of the airline cycle (i.e. the 'risk trade' looks less attractive to us right now). We have also grown more comfortable with WestJet's fundamentals over the past few months following the change in its CEO last year."

Downside: He downgraded Air Canada's rating to "market perform" from "outperform" and maintained an "outperform" rating on WestJet . His target price for Air Canada is $3.15, compared with $5.00 earlier.

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IBI Group Inc.'s fourth-quarter revenue of $76-million missed expectations, but the engineering company's organic growth is likely to pick up this year after being negative for about two years, CIBC World Markets analyst Paul Lechem said.

"Overall, IBI's business continues to recover from recent lows," Mr. Lechem wrote, noting that IBI has an order backlog of more than nine months. Its recent $57.5-million convertible debenture offering is likely to be used to repay debt and fund recent acquisitions, he said. The public sector market, which contributes two-thirds of IBI's revenue, is growing, and the private sector is also showing signs of recovery.

Upside: Mr. Lechem raised his target price to $16.50 from $16 and maintained his "sector perform" rating on the stock.

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Canadian Helicopters Group Inc. beat fourth-quarter earnings forecasts, helped by high-margin contributions from efforts in Afghanistan, Desjardins analyst Benoit Poirier said.

"Management is confident of generating significant revenues from Afghanistan, in anticipation of the postwar period. In its domestic market, management remains quite optimistic as several economic indicators have turned positive, including a progressive upturn in the mining sector," he wrote. "We expect the defence and mining sectors to be key drivers in propelling CHL's shares to higher altitudes."

"The company also reiterated that it is studying acquisitions to further diversify its revenue base, and we believe the company is very well positioned, given its strong balance sheet. Canadian Helicopters ended the quarter with no debt and $43-million in cash (versus our forecast of $39-million), which represents $3.30/share."

Upside: Mr. Poirier has a "buy" rating on the helicopter-maker and has a $21.50 target price.