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Here come the price target cuts for Transat

Transat A.T. Inc. shares have descended a further 3 per cent in afternoon trading after plunging 9 per cent Thursday in reaction to its disastrous third quarter.

Adjusted earnings per share of 7 cents were far below consensus forecasts of 51 cents, as excess competition in the transatlantic market resulted in very weak margins. Transat also announced a management shakeup that resulted in the departures of chief operating officer Nelson Gentiletti and Transat Tours Canada president Michael DiLollo. It's working on a cost-cutting plan to be revealed in December.

Analysts today are slashing away at their price targets, warning that investors are going to need a lot of patience to see a turnaround.

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Canaccord Genuity analyst David Tyerman cut his target by $2.50 to $8 and maintained a "hold" rating. He had a price target on the stock of $18.25 as recently as this past June.

"We suspect TRZ may face tough competitive conditions for the next year or more due to the potential for weak economic fundamentals. This may result in continued excess capacity in TRZ's key markets, resulting in low pricing and margins," Mr. Tyerman wrote in a research note.

CIBC World Markets Inc. analyst Kevin Chiang, who had a rosy price target on the stock of $14 before the latest earnings release, cut his forecast to $10.50. "There is unlikely to be a rebound in profitability until fiscal 2013 at the earliest," he said.

Mr. Chiang also offered some insight into how low Transat's stock could fall. In previous periods of economic uncertainty, Transat's tangible book value provided a floor for the shares. Right now, that book value is $6.71 a share.


Texas Instruments Inc. reported weak quarterly results this week along with guidance suggesting softer than expected revenue ahead for the third quarter. Canaccord Genuity analyst Bobby Burleson notes that analog bookings are looking soft in Taiwan, pointing to little rebound potential.

Downside: Mr. Burleson cut his price target by $7 to $25 while maintaining a "hold" rating.

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Migao Corp. reported lower than expected earnings as a result of timing issues related to higher raw material costs and a maintenance shutdown. But Canaccord Genuity analyst Keith Carpenter believes that margins will return to more normal levels in the current quarter for the company, which owns and operates fertilizer production plants throughout China.

"We continue to recommend that clients overweight their position in Migao, but do so with the understanding that the outlook on Chinese-related equities on the TSX will likely continue to experience high volatility for the foreseeable future," said Mr. Carpenter.

Downside: Mr. Carpenter cut his price target by 25 cents to $6 and maintained a "buy" rating.

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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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