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Foraco International Downgraded to 'Sector Performer' by CIBC, PT Cut

 November 08, 2012 02:41 PM

(By Balaseshan) CIBC World Markets Inc. analyst Kevin Chiew downgraded his rating of Foraco International S.A. (TSE: FAR) to "sector performer" from "sector outperformer" and lowered his price target to C$3.75 from C$5.

FAR reported Q3 earnings of $0.04/share (CIBC estimated $0.11/share), negatively impacted by three contracts in Chile that had reduced drilling activity. Chile is a major contributor to FAR's South American operations, which account for about 50 percent of total company revenue, Chiew noted.

An improvement in operations in Chile will happen, but will require time. Of the three aforementioned contracts, two are currently being re-tendered, but will continue with a reduced fleet until at least the end of 2012, the analyst noted. Chile is also integrating a recent change in management (announced Q2-2012).

The brokerage reduced its 2012 EPS estimate to $0.31 from $0.49 and its 2013 estimate to $0.41 from $0.59.

Updating his model, Chiew has decreased his 2013 revenue and adjusted gross margin estimates to $459 million and 31.5 percent (from $513 million and 33.8 percent), respectively. Based on these revised estimates, FAR is trading at 7.4 times 2013 price-to-earnings compared with the group average of 7.2 times.

While the analyst continues to believe FAR has strong defensive characteristics (excluding top-tier client portfolio, diversified commodity base, and global focus), it has not been immune to industry conditions.

FAR is trading down 0.69 percent at C$2.88 on Thursday.

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