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Wall Street banks turn bullish on LinkedIn

LinkedIn Corp. , which is still trading below its premier price of $82 (U.S.) in May, was treated to several bullish reports today from some of Wall Street's biggest investment houses.

Morgan Stanley analyst Scott Devitt issued a "tactical" buy rating, citing expected demand for the shares given "strong business fundamentals and long-term growth prospects." He believes there's at least an 80 per cent chance the stock will be higher in the next 30 days.

J.P. Morgan analyst Doug Anmuth upgraded to the stock to "overweight" from "neutral," although he reduced his target to $84 from $98. "LinkedIn's float has more than doubled since the May IPO – likely to more than 20 per cent of shares outstanding – and more shares could still come to market on the heels of the November 20 lock-up expiration," he noted. "However, we are more comfortable with the shares at current levels given what we believe will be continued strong operational performance."

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Bank of America Merrill Lynch analyst Justin Post reiterated his "buy" rating but trimmed his price target to $91 from $108. "While valuation is very rich, our positive view is based on LinkedIn's opportunity to report significant near-term upside if the company can execute on its International expansion and consumer engagement strategies," he wrote.

Investors may want to take the new bullish views with a grain of salt. As Forbes.com points out, all three firms were the lead underwriters of the LinkedIn IPO and the secondary offering.

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Precision Drilling Corp.'s plans to aggressively ramp up its spending in 2012 has prompted a downgrade from UBS analyst Chad Friess, who is concerned that next year's budget is now nearly double estimated cash flow.

The $1.14-billion budget, plus $140-million in spending that's been pushed into 2012 due to construction delays this year, brings Precision Drilling's budget for the year to $350-million more than Mr. Friess had expected. Furthermore, it is $530-million above forecasted cash flow of $610-million.

"While we forecast the North American drilling will remain stronger for longer and don't expect PD to encounter the same liquidity issues it did in the last downturn, we believe ongoing economic uncertainty should elicit some degree of caution and fiscal prudence," said Mr. Friess.

Upside: Mr. Friess downgraded the stock to "neutral" from a "buy" and maintained a price target of $13.

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Standard & Poor's has cut its long-term credit rating for Yellow Media Inc. two notches deeper into junk status and warned further downgrades are possible, noted Canaccord Genuity analyst Aravinda Galappatthige.

The ratings agency cited deteriorating cash flows and weakened access to capital markets - concerns that were echoed by Mr. Galappatthige.

"Our key concern at this point for YLO is its cash position in the potential event that the bank credit facility ($500-million combined) is not renewed in February 2013. Our financial projections assume no renewal. Based on our projections, we estimate that as at the end of fiscal 2013, YLO will have a cash balance of $137-million," he said.

"Bond maturities in fiscal 2014 amount to $255-million, which means that it needs to generate approximately $150-million in free cash flow in fiscal 2014, by our estimate. We believe this is achievable, but still too close for comfort," he added.

S&P now rates longer-term debt of Yellow Media BB (minus) instead of BB (plus).

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Downside: Mr. Galappatthige reiterated his "sell" rating and zero price target.

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Investors should buy Wi-LAN Inc. now given the stock's recent pullback, which has left it trading below net asset value, contends CIBC World Markets Inc. analyst Todd Coupland. "Our view is that present value of WIN's licensing pipeline is at least $6 per share," he said, noting that the high-speed wireless equipment company is shielded from economic swings given that 80 per cent of its contracts are fixed.

Upside: Mr. Coupland reinstated coverage with a "sector outperformer" rating and $10 price target.

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Major Drilling Group International Inc. reported record quarterly results that easily topped Street expectations. Beacon Securities Ltd. analyst Michael Mills believes the future looks promising, too: "MDI is focused on senior customers, who are expected to approve healthy 2012 exploration budgets," he said, noting that the company is having to turn away bids for its services.

Upside: Mr. Mills raised his price target by $2 to $20.

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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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