Analysts Bullish On Aber Diamond Despite Weak Results

While Aber Diamond Corp. (ABER) has garnered some extra attention of late due to its successful attempt to change its name to Harry Winston Diamond Corp., the luxury retail side of the business is not the primary reason to invest for some.

The mining division, which generated 59% of total revenue and 100% of reported total earnings from operations in the first quarter, is the real reason to own Aber shares, Desjardins Securities John Hughes said in a note to clients.

Its 40% interest in the Diavik diamond mine, which produced 2.6 million carats in the first three months of 2007, has helped the mining division contribute all of Aber’s consolidated earnings in the past five quarters.

Aber’s quarterly earnings came in well below analyst expectations, despite strength from both its mining and retail divisions. A strengthening Canadian dollar versus the U.S. greenback was to blame, something Mr. Hughes expects will also hurt second quarter results.

He maintained his “buy” recommendation and C$53.50 price target on Aber shares, which represents upside of roughly 18%.

Brian MacArthur shares this optimism, with a “buy” rating and C$52 price target.

Aber’s growth plans for Harry Winston, if successful, could add US30¢ to earnings per share later this decade, he said in a research note.

Irene Nattel at RBC Capital Markets, who maintained her “outperform” rating and US$47 price target, said the name change and a probable NYSE listing in October or November, should expand the company’s investor base further beyond those focused on mining.

For the mining segment, Mr. MacArthur noted that quarterly results often fluctuate due to seasonal production changes at Diavik, the number of rough diamond sales, and the size and quality distribution rough diamonds.