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WestJet shares just beginning to take off: analysts

WestJet Airlines Ltd. shares ascended rapidly this week after reporting earnings that trounced Street expectations. And the good news is continuing for the air carrier: instead of raising concerns the stock is reaching full valuation, several analysts are aggressively hiking their price targets.

Citing WestJet's strong balance sheet, increasing fares that will help offset rising fuel costs, and an improved strategy, CIBC World Markets Inc. analyst Jacob Bout upgraded the stock to "sector outperfomer" and raised his price target by $3 to $20.

Mr. Bout applauded the company's decision to defer six planes to as late as 2018, calling it a better alignment with lease renewals. "Our concern has been that with WJA scheduled to take on 44 new planes, the company would be forced to add capacity ahead of demand," he added.

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Mr. Bout also likes WestJet's plans to court more business travelers through its expansion of service in the Toronto-Montreal-Ottawa eastern triangle, since these customers are less price sensitive and fly more often.

Canaccord Genuity analyst David Tyerman also raised his price target to $20, commenting that WestJet's focus appears to be shifting to return on invested capital, rather than market share, through its capacity deferrals and yield improvement efforts to offset fuel price increases. "We believe this will generate increased shareholder value," said Mr. Tyerman, who expects a near doubling of earnings per share over the next two years.

Scotia Capital Inc. analyst Turan Quettawala maintained a $19 price target on the stock. He expects a near-term correction given this week's rally, but believes it remains cheap when looking at a 12-month horizon.

A pull-back isn't happening so far, however. After a 12-per-cent jump Wednesday, WestJet shares are up more than 2 per cent so far today.

Increasing airliner production and improving airline profitability bodes well for flight simulation firm CAE Inc. , which up until now has relied on strong military sales to offset weakness in civil aviation, said Canaccord Genuity analyst David Tyerman. He projects earnings per share to grow more than 50 per cent in the next three years as these two markets both start showing strong growth trends.

Upside: Mr. Tyerman hiked his price target by $2 to $16.

With a recapitalized balance sheet, the settlement of lawsuits and a revitalized product line-up, Mega Brands Inc. is returning to growth and profitability, noted Versant Partners analyst Neil Linsdell. But the company is trading at low valuation multiples as a result of the early stage of its recovery, he said.

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Upside: Mr. Linsdell initiated coverage with a 12-month price target of $1 and a "buy" recommendation.

Related: Mega Brands looks to build on momentum

Teck Resources Ltd. reported disappointing fourth-quarter results and 2011 guidance, prompting Canaccord Genuity analyst Orest Wowkodaw to lower his forecast for copper and coking coal production this year by 7 per cent and 4 per cent, respectively. "While we have reduced our estimates, we anticipate Teck shares to outperform in the near term based on ongoing coking coal and copper price momentum," he said.

Downside: Mr. Wowkodaw maintained his "buy" rating but cut his price target by $4 to $76.

Related: Rising commodity prices boost Teck profit

Related: Teck has no plans to reduce debt further, CEO says

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Ongoing studies at Equinox Minerals Ltd.'s Lumwana project in Zambia now suggest a bigger-than-expected mill expansion thanks to newly found copper resources, noted UBS analyst Onno Rutten. The start-up for the larger project is aimed for 2015, a year later than Mr. Rutten's earlier expectations, but capital costs compare favourably to other greenfield projects.

Upside: Mr. Rutten hiked his 12-month price target to $6.80 from $5.50 and raised his rating to "neutral" from "sell."

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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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