April 13, 2010 TODAY'S HIGHLIGHTS U.S. Canadian / Int'l Initiating Coverage MBAC Fertilizer Estimates/Targets Raised Public Storage CN Railway Compass Minerals Kansas City Southern Union Pacific Express Scripts Estimates/Targets Lowered Alcoa Sector Revisions Electric Util. & Ind. Power: MIR and RRI Combination to Create Material Cost... Rating Upgrades: Mirant Paper & Forest Prod.: Ratings, Estimates Changed and Target Prices Increased Rating Downgrades: Tembec, Catalyst Papers Rails: Q1/10 Preview and Estimate Adjustments; Strong Volume Growth and... Semiconductors : 1Q10 Preview - Decent Fundamentals, Hand in Hand with... Featured Reports MBAC Fertilizer: Initiating Brazilian Phosphate Junior at Outperform (S)... FINANCIALS Diversified Financials Sector Report The Canadian Exchange Bulletin REITs U.S. Public Storage Filling the LA Basin ENERGY & UTILITIES Electric Util. & Ind. Power Sector Comment MIR and RRI Combination to Create Material Cost... MATERIALS Metals & Mining U.S. Alcoa Alcoa Reports Q1/10 Underlying Earnings of US$94M or... Paper & Forest Prod. Sector Comment Ratings, Estimates Changed and Target Prices Increased Fertilizers U.S. Compass Minerals Pre-Released Q1 Highway Deicing Volume Slightly Better... Fertilizers Canada MBAC Fertilizer Initiating Brazilian Phosphate Junior at Outperform... CAPITAL GOODS & SERVICES Rails Canada CN Railway Adjusting Q1 Estimates for Volumes Rails U.S. Kansas City Southern Adjusting Q1 Estimates for Volumes Rails U.S. Union Pacific Adjusting Q1 Estimates for Volumes Rails Sector Comment Q1/10 Preview and Estimate Adjustments; Strong Volume...
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April 13, 2010
TODAY'S HIGHLIGHTS
U.S. Canadian / Int'l
Initiating Coverage MBAC Fertilizer
Estimates/Targets Raised Public Storage CN Railway
Compass Minerals
Kansas City Southern
Union Pacific
Express Scripts
Estimates/Targets Lowered Alcoa
Sector Revisions Electric Util. & Ind. Power: MIR and RRI Combination to Create Material Cost... Rating Upgrades: Mirant Paper & Forest Prod.: Ratings, Estimates Changed and Target Prices Increased Rating Downgrades: Tembec, Catalyst Papers Rails: Q1/10 Preview and Estimate Adjustments; Strong Volume Growth and... Semiconductors : 1Q10 Preview - Decent Fundamentals, Hand in Hand with...
Featured Reports MBAC Fertilizer: Initiating Brazilian Phosphate Junior at Outperform (S)...
FINANCIALS
Diversified Financials Sector Report The Canadian Exchange Bulletin
REITs U.S. Public Storage Filling the LA Basin
ENERGY & UTILITIES
Electric Util. & Ind. Power Sector Comment MIR and RRI Combination to Create Material Cost...
MATERIALS
Metals & Mining U.S. Alcoa Alcoa Reports Q1/10 Underlying Earnings of US$94M or...
Paper & Forest Prod. Sector Comment Ratings, Estimates Changed and Target Prices Increased
This report was prepared by an analyst(s) employed by BMO Nesbitt Burns Inc., and who is (are) not registered as a research analyst(s) under FINRA rules. For disclosure statements, including the Analyst’s Certification, please refer to pages 3 to 6.
The Canadian Exchange BulletinA Preliminary Monthly Recap of Trading, Financing and Other Market Activities
(1) Venture and NEX combined, except for # of new listings, which is Venture only.Source: Company Reports
Filling the LA Basin Securities Info Price (12-Apr) $93.93 Target Price $78 52-Wk High/Low $95/$57 Dividend $2.60Mkt Cap (mm) $15,930 Yield 2.8%Shs O/S (mm, BASIC) 169.6 Ann. Div/2010 AFFO 57%Options O/S (mm) na ADVol (30-day, 000s) 1,233
Price Performance
Event We are raising estimates for the $189 million acquisition of 28 Los Angeles
area and two Chicago area properties (including $126 million of debt) and
subsequent $161 million preferred stock issuance.
efer to pages 4 to 6 for Important Disclosures, in
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PUBLIC STORAGE INC (PSA)Price: High,Low,Close(US$) Relat ive to S& P 500
Impact The acquisition represents a lease-up opportunity for PSA as the acquired portfolio was 80% occupied at January 31 compared to 87% for PSA’s domestic portfolio. The $99 per square foot price appears reasonable forinfill properties. PSA subsequently issued $161 million (assuming the overallotment) of preferred stock. While we think PSA’s cash hoard could significantly grow earnings per share if fully invested, the company’s long-term history indicates this is not likely.
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Forecasts We are increasing our 2010 and 2011 FFO estimates by $0.06 and $0.08 to $4.83 and $5.00, respectively. We assume a 7.5% stabilized cap rate. Though this is a fairly large transaction, PSA’s existing asset base and aversion to leverage dampens its earnings impact.
Valuation PSA trades at 20.0x our 2011 AFFO, a 4% premium to the REIT universe.The stock trades at a 55% premium to our revised NAV estimate of $60.42(from $59.84) as compared to a 30% premium for the REIT universe. Our $78 target (revised from $72) assumes the 30% REIT average NAVpremium.
Recommendation We reiterate our UNDERPERFORM rating.
Changes Annual FFO Annual AFFO Quarterly FFO Target 2010E $4.77 to $4.83 2010E $4.47 to $4.53 Q2/10E $1.20 to $1.22 $72.00 to $78.00 2011E $4.92 to $5.00 2011E $4.62 to $4.70 Q3/10E $1.24 to $1.26 Q4/10E $1.21 to $1.23
Balance Sheet Data (12/31/09) Total Debt ($mm) $519 Total Mrkt Cap (mm) $19,537 Var. Rate Debt ($mm) $0 NAV estimate $60.42 Dil. Shs/Outst. (mm) na Prem/(Disc) to NAV 55%
Notes: All values in US$. Source: BMO Capital Markets estimates, Bloomberg, FactSet, Global Insight, Reuters, and Thomson Financial.
Notes: All values in US$ Major Shareholders: Capital World Investment (6.07%), Barclays (4.47%) First Call Mean Estimates: ALCOA INC. (US$) 2010E: na; 2011E: $1.12
Changes Annual EPS Annual CFPS Quarterly EPS 2010E $0.76 to $0.74 2010E $2.13 to $2.11 Q2/10E $0.09 to $0.10 2011E $1.20 to $1.14 2011E $2.68 to $2.56 Q3/10E $0.25 to $0.24 Q4/10E $0.31 to $0.30
This report was prepared in part by an analyst(s) employed by a Canadian affiliate, BMO Nesbitt Burns Inc., and who is (are) not registered as a research analyst(s) under FINRA rules. For disclosure statements, including the Analyst's Certification, please refer to pages 6 to 7.
Notes: All values in US$ Major Shareholders: Neuberger Berman (13%) First Call Mean Estimates: COMPASS MINERALS INTERNATIONAL I (US$) 2010E: $5.83; 2011E: $6.60
Changes Annual EPS Annual CFPS Quarterly EPS 2010E $6.27 to $6.29 2010E $8.20 to $8.21 Q1/10E $1.89 to $1.91
This report was prepared by an analyst(s) employed by BMO Nesbitt Burns Inc., and who is (are) not registered as a research analyst(s) under FINRA rules. For disclosure statements, including the Analyst’s Certification, please refer to pages 35 to 38.
MBAC Fertilizer(MBC – TSX)
Stock Rating: Outperform (S)
Industry Rating: Outperform
Initiating Brazilian Phosphate Junior at Outperform (S); Proving Reserves in the Breadbasket Price (9-Apr) $2.30 52-Week High $3.95
Target Price na 52-Week Low $0.07
(FY – Jul) 2009A 2010E 2011EEPS na -$0.29 -$0.05
P/E na na
CFPS na -$0.08 -$0.01
P/CFPS na na
Rev. ($mm) na $4 $9
EV ($mm) na na na
EBITDA ($mm) na -$21 -$7
EV/EBITDA na na na
Dividend $0.00 Yield 0.0%
Book Value $2.28 Price/Book 1.0x
Shares O/S (mm) 72.6 Mkt. Cap ($mm) $167
Float O/S (mm) 54.5 Float Cap ($mm) $125
Notes: All values in C$; (S) in rating denotes Speculative
Notes: All figures in US$; ROE & Book Value calculated on fully diluted basis Major Shareholders: Widely Held First Call Mean Estimates: KANSAS CITY SOUTHN (US$) 2010E: $1.47; 2011E: $1.93
Changes Annual EPS Annual CFPS Quarterly EPS 2010E $1.50 to $1.55 2010E $4.10 to $4.15 Q1/10E $0.28 to $0.33
This report was prepared by an analyst(s) employ d as a research analyst(s) under FINRA rules. For disclosure statements, including
Union Pacific (UNP-NYSE) Stock Rating: OutperformIndustry Rating: Outperform
April 12, 2010 Research Comment Toronto, Ontario
Randy Cousins, CFA BMO Nesbitt Burns Inc. (416) 359-6194 [email protected] Assoc: Stephen Yang
Price (9-Apr) $75.75 52-Week High $75.98 Target Price $75.00 52-Week Low $44.00 Adjusting Q1 Estimates for Volumes
ed by BMO Nesbitt Burns Inc., and who is (are) not registere the Analyst's Certification, please refer to pages 6 to 8.
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Union Pacific Corp. (UNP)Price: High,Low,Close(US$) Earnings/Share(US$)
Event
Our Q1 estimate for Union Pacific was based on an increase in carload volumes
of 7.6%. As noted in our sector comment, Rail March Madness (March 22,
2010), the final month of the quarter is critical. Actual carloadings in Q1 were
up 12.8% y/y. March carloads were up 15.6%. We are adjusting our Q1
estimates to reflect the strong start to the year.
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Impact
Positive. Strong volume growth is combined with excellent network metrics.
Forecasts
We are increasing our Q1/10 EPS estimate to $0.90 from $0.80. Consequently
our 2010 earnings estimate is increased by 10 cents to $4.40. Our 2011 earnings
estimate remains $5.11 per share.
Valuation
Our target price is $75 or 17 times our 2010 earnings estimate.
Recommendation
The combination of double-digit volume growth and a network that arguably
has never run better should have a positive impact on earnings. We rate UNP
Outperform. We will make any necessary adjustment to our target price and or
ratings for UNP and the other railroads following the completion of the Q1
Notes: All figures in US$ Major Shareholders: Widely held First Call Mean Estimates: UNION PACIFIC CORP (US$) 2010E: $4.35; 2011E: $5.17
Changes Annual EPS Annual CFPS Quarterly EPS 2010E $4.30 to $4.40 2010E $8.05 to $8.15 Q1/10E $0.80 to $0.90
This report was prepared by an analyst(s) employed by BMO Nesbitt Burns Inc., and who is (are) not registered as a research analyst(s) under FINRA rules. For disclosure statements, including the Analyst's Certification, please refer to pages 6 to 7.
Industrials - Transportation: Rails
Industry Rating: Outperform
April 12, 2010 Research Comment Toronto, Ontario Randy Cousins, CFA (416) 359-6194 [email protected] Assoc: Stephen Yang
Q1/10 Preview and Estimate Adjustments; Strong Volume Growth and Solid Operating Results Summary
With the exception of CP, the Q1 volume
results for all the other railroads were better
than our expectations. The biggest positive
surprises were CNR/CNI, UNP and KSU.
Railroading is a volume game. The more
traffic you move the better your earnings
should be.
Given better-than-expected volumes and the
solid operating performance of UNP and KSU
we have increased our Q1/10 and 2010
estimates. We have increased the Q1 estimate
for CNR/CNI but left the annual estimate
alone. The higher Canadian dollar is expected
to offset any Q1 win.
It has been a strong start to the year for the
industry. The first quarter results will be the
first true test of operational torque. We
believe that the industry should be able to add
incremental volumes at very low costs and
that the market/street is underestimating the
volume EBIT leverage.
On balance we expect all the companies to
report solid EPS growth. Moreover, we
believe the potential for positive surprise
across the group is quite high.
UNP, CSX and NSC are our top picks. For
Canadian constrained investors we prefer
CNR.
In our recent comment, Rail March Madness (March 22, 2010), we observed
that March was the most important month in the quarter. Based on the 2008
and 2007 numbers, a more normal economy, March is about 38% to 41% of
the volumes in the first quarter. Table 1 looks at the year-over-year increase in
volumes in 2010 through the first two months of the quarter and in the month
of March. Note that in most cases, the rate of increase accelerated in the final
NKTR-102 Positioned Well at ASCO Securities Info Price (12-Apr) $14.60 Target Price $1752-Wk High/Low $16/$5 Dividend --Mkt Cap (mm) $1,367 Yield --Shs O/S (mm, BASIC) 93.6 Float O/S (mm) 92.9Options O/S (mm) na ADVol (30-day, 000s) 936
Selected Bond Iss
Event Abstract titles released ahead of the 2010 American Society of Clinical
Oncology (ASCO) meeting show Phase 2 NKTR-102 ovarian cancer data
(Abstract 5013) will be presented at an important oral abstract session on
gynecologic cancer on Sunday, June 6. Furthermore, the ‘102 data will likely
also be discussed in a presentation immediately following entitled
“Chemotherapy of the future in platinum resistant disease.”
efer to pages 10 to 12 for Important Disclosures, in
Impact With the positive Phase 2 data we have already seen, and with a discussion possibly positioning NKTR-102 as chemotherapy of the future in certain ovarian settings, we believe the ASCO presentations will be positive for NKTR-102, and a catalyst for NKTR shares.
Forecasts We continue to anticipate a partnership for NKTR-102 this year, and believeNKTR shares will respond well to the progress. We note that the NKTR-102 response appears solid relative to other agents in platinum refractory/resistant ovarian cancer settings; comparing this ‘102 data to agents in less challenging ovarian settings is not appropriate. Other NKTR catalysts include moves into Phase 3 for NKTR-118 (partnered with AstraZeneca) foropioid-induced constipation and inhaled amikacin (with Bayer) forventilator-acquired pneumonia. Additional Phase 2 NKTR-102 data in breast and colorectal cancer and Phase 1 data for NKTR-105 are also likely in 2010.
Valuation We value NKTR shares at $17 using sum-of-the-parts analysis (see below).
Recommendation With promising assets emerging across a range of therapeutic areas, potentialfurther material pipeline validation over the next 12-18 months, and with progress for its partnered programs, we rate NKTR shares OUTPERFORM.
Ind Prc Rat’g Mdys/S&P YTW SpreadNKTR 3.25% '12 99 na / na 3.76% 267bpBond data from Bloomberg.
Price Performance
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NEKTAR THERAPEUTICS (NKTR)Price: High,Low,Close(US$) Relat ive to S& P 500
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Last Data Point: April 9, 20 10
Valuation/Financial Data
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(FY-Dec.) 2008A 2009A 2010E 2011E
EPS Pro Forma -$1.67 -$1.11 -$0.18 -$0.67 P/E nm nm First Call Cons. -$0.30 -$0.95 EPS GAAP -$1.67 -$1.11 -$0.18 -$0.67
The Next(Rx) Phase – Faster Accretion Through Better SG&A Leverage
Securities Info Pr ice (12-Apr) $102.43 Target Price $120 52-Wk High/Low $104/$52 Dividend --Mk t Cap (mm) $28,199 Yield --Shs O/S (mm, BASIC) 275.3 Float O/S (mm) 274.1Options O/S (mm) na ADVol (30-day, 000s) 2,014
Selected Bond Iss Ind Prc Rat’g Mdys/S&P YTW SpreadESRX9.638 '09 na WR / NR naESRX 9.638% '09 na WR / NR naBond data from Bloomberg.
Price Performance
Event Updating estimates to reflect greater 2011 earnings accretion through better
SG&A leverage.
Impact Positive – We are updating our earnings estimates to reflect greater earnings accretion associated with Express Scripts’ acquisition of NextRx. Our new2010 assumptions bring us more inline with company guidance, while ourupdated 2011 estimates make us even more bullish on the name. We believethat positive momentum in the market place will help Express Scripts pushoperating efficiencies through the NextRx book of business faster thanpreviously expected. We are raising our 2011 operating earnings estimate to$6.30 (which excludes deal amortization) and raising our price target to$120. We rate shares of ESRX OUTPERFORM and continue to expectdouble-digit earnings growth through 2011 and beyond.
efer to pages 4 to 6 for Important Disclosures, in
Forecasts Excluding mergers and acquisitions, our current EPS estimates for ESRX are$5.00 for 2010 and $6.30 for 2011. This represents 42% adjusted EPSgrowth in 2010 and 26% in 2011.
Valuation ESRX shares trade at approximately 16.3x our adjusted 2011 EPS estimateof $6.30. We believe the shares merit a forward P/E of 19x as earnings growth remains robust, producing a price target of $120. Our target multiple is in the midrange of ESRX’s historical range and reflects the politicaloverhang currently weighing on the healthcare sector.
Recommendation We continue to rate ESRX shares OUTPERFORM.
Changes Annual EPS Quarterly EPS Target 2010E $5.06 to $5.00 Q1/10E $1.20 to $1.10 $110.00 to $120.00 2011E $5.94 to $6.30 Q2/10E $1.25 to $1.20 Q3/10E $1.27 to $1.30
Q4/10E $1.34 to $1.40
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Volum e ( mln)
L ast Data Point : Apr il 9, 201 0
Valuation/Financial Data
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(FY-Dec.) 2008A 2009A 2010E 2011E EPS Pro Forma $3.09 $3.52 $5.00 $6.30 P/E 20.5x 16.3x First Call Cons. $4.94 $6.23 EPS GAAP $3.09 $3.28 $4.13 $5.94
FCF $2.89 $3.54 na na P/FCF na na EBITDA ($mm) $1,378 $1,641 $2,486 $3,020 Rev. ($mm) $19,534 $21,732 $40,309 $44,430
Balance Sheet Data (12/31/09) Net Debt ($mm) $2,751 TotalDebt/EBITDA 0.4x Total Debt ($mm) $3,833 EBITDA/IntExp 1.5x Net Debt/Cap. 37.3% Price/Book 49.0x Notes: All values in US$. Source: BMO Capital Markets estimates, Bloomberg, FactSet, Global Insight, Reuters, and Thomson Financial.
Important Disclosures Analyst's Certification As to each company covered in this report, the analyst hereby certifies that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients. Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Ltd. are not registered as research analysts with FINRA. These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Company Specific Disclosures For Important Disclosures on the stocks discussed in this report, please go http://researchglobal.bmocapitalmarkets.com/Company_Disclosure_ Public.asp.
* Reflects rating distribution of all companies covered by BMO Capital Markets Corp. equity research analysts. ** Reflects rating distribution of all companies from which BMO Capital Markets Corp. has received compensation for Investment Banking services as
percentage within ratings category. *** Reflects rating distribution of all companies from which BMO Capital Markets Corp. has received compensation for Investment Banking
services as percentage of Investment Banking clients. **** Reflects rating distribution of all companies covered by BMO Capital Markets equity research analysts. ***** Reflects rating distribution of all companies from which BMO Capital Markets has received compensation for Investment Banking services as
percentage of Investment Banking clients.
Ratings and Sector Key We use the following ratings system definitions: OP = Outperform - Forecast to outperform the market; Mkt = Market Perform - Forecast to perform roughly in line with the market; Und = Underperform - Forecast to underperform the market; (S) = speculative investment; NR = No rating at this time; R = Restricted – Dissemination of research is currently restricted.
Market performance is measured by a benchmark index such as the S&P/TSX Composite Index, S&P 500, Nasdaq Composite, as appropriate for each company. BMO Capital Markets eight Top 15 lists guide investors to our best ideas according to different objectives (Canadian large, small, growth, value, income, quantitative; and US large, US small) have replaced the Top Pick rating.
Other Important Disclosures For Other Important Disclosures on the stocks discussed in this report, please go to http://researchglobal.bmocapitalmarkets.com/Company_Disclosure_ Public.asp or write to Editorial Department, BMO Capital Markets, 3 Times Square, New York, NY 10036 or Editorial Department, BMO Capital Markets, 1 First Canadian Place, Toronto, Ontario, M5X 1H3.
Prior BMO Capital Markets Ratings Systems http://researchglobal.bmocapitalmarkets.com/documents/2009/prior_rating_systems.pdf
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