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Good news for CP may be bad for Ackman, says Desjardins

CP ranks as the least efficient of North America’s Big Six railways, with operating costs equalling 82.4 per cent of its revenue in the first nine months of 2011.

Jack Kuiphoff/Canadian Pacific Railway/Jack Kuiphoff/Canadian Pacific Railway

The drawn-out proxy fight between Pershing Square's Bill Ackman and Canadian Pacific Railway Ltd. management may become more complicated when the railway announces upbeat first-quarter results on April 20, says Desjardins Securities Inc. analyst Benoit Poirier.

CP announced Tuesday that it expects its diluted earnings per share to be between 80 cents and 83 cents, or a roughly 300 per cent increase over first quarter 2011

Mr. Ackman has been agitating for the removal of CP CEO Fred Green, arguing that the railroad lags its competitors on almost every metric. He would like to see Mr. Green replaced with former Canadian National Railway CEO Hunter Harrison. Such upbeat quarterly results are not likely to help his case.

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"Our sense is that with yesterday's announcement, Pershing Square will have a more difficult time convincing investors that CP's management needs to be changed," says Mr. Poirier.

He is revising his quarterly estimates for CP, which now include revenue of $1.32-billion (Canadian) (vs. consensus of $1.29-billion) and fully diluted earnings per share of 79 cents (vs. consensus of 65 cents).

Other analysts say Pershing Square still has plenty of momentum. "Our dialogue with investors still suggests the odds favour Pershing Square," wrote TD Securities Inc. analyst Cherilyn Radbourne.

Upside: Mr. Poirier is maintaining his "hold" rating and increasing his price target $1 to $77 (Canadian).

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Recent meetings with the management of InterRent REIT have reaffirmed Desjardins Securities Inc. analyst Jenny Ma's view that the trust is primed for sustainable growth.

InterRent is looking to acquire an additional $100-million of properties in 2012. She says management is committed to growing accretively and creating value and claims it will not "chase deals" for the sake of growth.

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Upside: Ms. Ma is maintaining her "top pick -- average risk" rating and $5 (Canadian) price target.

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Versant Partners Inc. analyst Massimo Fiore is upgrading his rating for 5N Plus to "neutral" from "sell" based mainly on a steep drop in the company's share price.

5N Plus currently has approximately $260-million (U.S.) in net debt and €15-million in promissory notes due in April, enough for Mr. Fiore to counsel investors to wait on the sidelines until better news emerges.

"We would consider changing our recommendation on significant price movement or turnaround in results," he says.

Upside: Mr. Fiore is maintaining his $3.30 (U.S.) price target.

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RBC Dominion Securities Inc. analyst Mark Sue is maintaining an "outperform" rating on Nokia Corp. even as the company warned its phone business would post losses in the first two quarers of this year and revealed a software bug in its new Lumia 900 smartphone.

He notes the company is accelerating cost reduction plans and may explore other structural actions if things don't improve.

Upside: Mr. Sue cut his price target by $1 to $8.

Read More: Nokia cuts outlook, stock drops

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A large U.S. corn crop will drive growth at Ag Growth International Inc. over the next 12 months, said CIBC World Markets Inc. analyst Jacob Bout.

U.S. farmers are expected to plant 4.4 per cent more acres of corn in the upcoming marketing year, which is good news for Ag Growth given that a big chunk of demand for its portable and stationary grain handling equipment is tied to that commodity.

Upside: Mr. Bout raised his price target by $3.50 to $40 and maintained a "sector performer" rating.

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About the Authors
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

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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