TD Newcrest: Teck Cominco Is Undervalued

Teck Cominco Ltd. (TCK) has been a top pick of TD Newcrest analyst Greg Barnes for a while. On Monday, he published a note that furthers his view that the stock is undervalued compared to peers.

Mr. Barnes stripped out Teck's coal and oilsands units and just focused on base metals. He calculated that the stock is trading at 3.7 times 2008 EBITDA and 3.5 times 2009 EBITDA based on those assets. That is well below the other mid-cap base metal players, which are trading at an average of 4.3 times and 3.6 times, respectively.

This makes little sense to Mr. Barnes given Teck's lack of political risk, low operating costs, quality operations, strong cash flow, and limited exposure to zinc, which has performed very poorly compared to the other base metals.

Teck is still thought of as a "zinc" company in the minds of many investors because of its long history as a zinc producer. But Mr. Barnes pointed out that 47% of the company's operating profit this year comes from copper, and just 23% from zinc.

Comments

[nosivad:]

Just read Greg Barnes log and agree totally. Prior to reading it I just bought in. Since I agree so wholeheartedly, he must be brilliant.

2008 Jun 06 10:56 AM