Analysts Bullish on Teck Cominco, But Divided on Price Targets

While they remain bullish on Teck Cominco Ltd. (TCK), analysts have significantly different expectations regarding how high the shares can go.

On the more optimistic side is Desjardins Securities’ John Hughes. He maintained a “buy” recommendation, and C$49 price target on Teck shares after the diversified miner’s fourth quarter results were in-line with his expectations.

The results even beat RBC Capital Markets analyst H. Fraser Phillips’s expectations, but he cut his target to C$40 from C$45 to reflect lower production at Teck’s Highland Valley copper mine in south central British Columbia and higher operating costs.

While he likes Teck as a long-term investment given its strong portfolio, balance sheet and free cash flow, potential growth through acquisitions, and the possible return of cash to shareholders, Mr. Phillips sees limited production growth in the next one to three years. In the next two quarters, meanwhile, Teck’s results will likely take a hit from the strong loonie and rising costs, he told clients in a note.

While the recent correction makes Teck shares more attractive, Mr. Phillips is maintaining his “sector perform” rating for now. He is also waiting for a decision on funding for the company’s Petaquilla copper project in Panama.

Mr. Hughes reduced his first quarter earnings forecast for 2008 slightly to reflect seasonal shipping patterns at Teck’s Red Dog zinc and lead mine in Alaska. Typically, 30% to 40% of the company’s zinc and lead sales are recognized in the fourth quarter, while 20% to 25% are recognized in the first quarter, he said in a note.

Desjardins continues to expect that the copper market will be very tight, remaining in balance this year, but moving into a deficit in 2009. As for zinc, which the firm also has a positive outlook for, it is expected to remain in balance for 2008 and 2009.

Citigroup, meanwhile, has a C$50 price target on Teck. Analyst John Hill said Petaquilla is likely dead given the most recent capex blow-out at the project in Panama.

“This is further evidence that replacement value for copper is $2.50/lb or higher, as opposed to Street long-term consensus of $1.50,” he said in a note.

Comments

[the humble ...:]

The market is also ignoring potential sovereign fund interest in Teck. Teck is the largest remaining independent miner in Canada. There could very well be potential takeover activity in this stock simply because of its proven reserves.

2008 Feb 24 08:45 AM

[User 348774:]

Is Teck a smart investment in the market right now?

Feb 01 05:58 PM