Analysts Raise Teck Target On Fording Investment

The outlook in the coking coal market is positive because strong steel demand is pulling against constrained supply, UBS analyst Brian MacArthur wrote in a note to clients. That's good news for Teck Cominco Ltd. (TCK), which announced a $599-million deal Monday to boost its stake in coal producer Fording Canadian Coal Trust (FDG) to almost 20%.

Mr. MacArthur has boosted his target on the stock from C$34 a share to C$40 a share, and maintained a "buy" rating.

Teck said Monday that it boosted its interest in Fording for "investment purposes," but analysts continue to believe that Teck eventually wants to buy out its Elk Valley partner. According to RBC Capital Markets analyst Fraser Phillips, Teck is the "only logical buyer" for Fording, and the 20% stake is "an effective blocking position in any event." But he does not believe that a follow-up bid is likely in the near-term.

"Teck can afford to be patient and preserve its balance sheet for other opportunities," he wrote in a note to clients.

Mr. Phillips rates Teck a "sector perform" with a price target of C$52 a share. He does not expect the company to become a takeover target because of its dual-class share structure.