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Contrans Group Upgraded to 'Sector Outperformer' by CIBC

 November 13, 2012 03:48 PM

(By Balaseshan) CIBC World Markets Inc. analyst Kevin Chiang upgraded his rating of Contrans Group Inc. (TSE: CSS) to "sector outperformer" from "sector performer" with a price target of $11.

CSS reported a good Q3, Chiang noted. Net revenue of $112.8 million was in line with his expectations while EBITDA came in at $19.1 million versus his estimate of $18.5 million and consensus of $18.8 million. Acquisitions accounted for $9.3 million in revenue in the quarter with organic growth about 3 percent.

The company's Q3 reaffirmed the analyst's investment thesis that CSS is a defensive trucker with more limited downside risk and a good cash-flow story. Over the past two months though, the stock is off over 10 percent and, as such, effective Nov. 12 he upgraded the stock with his total return to target at 28 percent.

[Related -Mr. Market's Wary Outlook: Less Severe But Still Worrisome]

In addition, Chiang believes CSS will look to raise its dividend early next year (current dividend is $0.10 per quarter). He is forecasting a payout ratio (based on free cash flow) of 41 percent in 2012 and 31 percent in 2013.

The brokerage raised its 2012 EBITDA estimate to $71.6 million from $71 million and its 2013 estimate to $73.10 million from $73 million.

CSS is trading down 0.34 percent at $8.75 on Tuesday.

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