Analyst develops a taste for Cott shares again
When it comes to
Cott Corp., analysts following the private-label bottler of soft drinks and other beverages have not wowed investors with their awesome predictive powers.
In late 2004, several analysts cut their ratings on Cott — after the company lowered its earnings guidance for 2004. While the company blamed rising costs, Cott’s earnings took a hit when it was overwhelmed by rapid sales growth.
Cynthia Rose-Martel was one of those analysts, dropping her recommendation to hold from buy in late December. Then in late January, 2005, when the stock traded around $30, she told investors to “ sell.”
Today, though, at $27.68, she thinks “the worst is behind” Cott, according to a research note yesterday. She upgraded Cott to “ buy.” While Cott’s second- quarter earnings slid 15%, the company’s margins are headed in the right direction, she noted. Although the company is dealing with weak sales of soft drinks and heavy price competition in bottled water, Ms. Rose-Martel figures Cott’s earnings will begin to rebound in the third quarter as the company drives through additional price increases and further improves the efficiency of its plants.
The analyst is also heartened by Cott’s recent acquisition of Macaw (Holdings) Ltd., the largest privately-owned producer of private-label soft drinks in the U. K., and the hiring of a new chief financial officer with experience in private-label products. The company is also installing a new company-wide computer system that should help avoid the manufacturing problems of the past.
Ms. Rose-Martel raised her 12month price target to US$29.80 from US$20. In New York, Cott closed (COT/NYSE)
at US$23.74 yesterday. Keith Kalawsky Bets off Over a month ago, CryptoLogic Inc. told investors that one of its customers — Betfair — was considering yanking its relationship with the Internet gaming software company. At the time, CryptoLogic said Betfair, which runs an online poker house, hadn’t made a “definitive decision” about the future of its relationship, but indicated it wanted to get away from outsourcing.
Investors didn’t think Betfair was bluffing. CryptoLogic shares (CRY/TSX) tumbled 17% to close at $24.05 on Aug. 9, the day the Betfair news was revealed. CryptoLogic’s chief executive, Lewis Rose, said the company would try to “retain” Betfair as a customer while it worked out its long-term strategy.
Yesterday, David Shore, an analyst for Desjardins Securities and CryptoLogic fan, said “chances are extremely high that Betfair will move off CryptoLogic’s poker platform.”
Mr. Shore, who visited Betfair management in Britain last week, cut his Cryptologic target price to US$27 from US$38.50, but held on to his “buy” rating. Earnings per share in 2005 will escape unscathed, Mr. Shore predicted in a research note. His estimates for 2006, however, were lowered to US$ 1.35 from US$ 1.60.
When Betfair first cautioned CryptoLogic about its plans, others wondered if other customers might follow suit.
Mr. Shore doesn’t think that will be the case, noting that Betfair “is a unique company among CryptoLogic licensees, with a huge development staff and strong in-house technical strengths.” Golden opportunity?
Not everyone is convinced the shiny stuff will keep going up, up, up.
In fact, as gold skips along from one 17-year high to the next, BMO Nesbitt Burns analyst Geoff Stanley said investors should use the rally to take profits if they have them.
It’s the speculative nature of the surge, largely based on “seasonal and Katrina- related strength” that has Mr. Stanley concerned.