"Analysts' picks blend old, new - Mosaic, WestJet, Dorel"
James Ferrabee
The Gazette - May 30, 2000
MONTREAL - If
you are debating
whether to invest in
stocks in traditional
industries versus high
technology, why not
consider companies
that have a touch of
the old, a touch of the
new and fall into no
easily-defined box,
except that they are
making money and
are poised to make
more?
Three out-of-the-box companies grabbing the attention of analysts
these days include a design-communications firm, Mosaic Group
Inc., WestJet Airlines Inc. and furniture and home-furnishings maker
Dorel Industries Inc.
Mosaic specializes in finding new ways to bundle old businesses.
Two deals it announced in May are good examples, the first with
one of newly-privatized Ontario Hydro units and another with
Information Resources Inc., a publicly traded U.S. company that
provides sales and marketing information.
Ontario Hydro Energy, the retail service arm of Ontario Hydro,
through Mosaic's 75% owned e-commerce subsidiary, eForce, will
offer long-distance telephone service as well as hot-water-heater
service beginning this month.
The U.S. deal is the largest contract Mosaic has ever signed, worth
about $500-million over 10 years. Mosaic and IRI are forming a
company that will take over from IRI the management of 2,400
representatives who collect sales and merchandising information
from 29,000 retail locations each month.
Mosaic (MGX/TSE) has enjoyed a spectacular rise in the last 12
months from a low of $5.50 to a high of $22.05; it closed on the
TSE yesterday at $17.50.
Scott Fromson of HSBC Securities rates it as a "buy," and recently
raised his target to $25 from $24. John McIlveen of Yorkton
Securities rates it a "strong buy," and raised his target price to $26
from $23.50.
Tim Casey of BMO Nesbitt Burns gives it an "outperform" rating,
with a target price of $24.50. Michael Van Aelst of CIBC World
Markets rates it as a "buy," and raised his target price to $21.75
from $21.
Air Canada's brash, young competitor, WestJet Airlines
(WJA/TSE) has soared in the last 11 months. Its initial public
offering price last July was $10 a share. It has split three-for-two
and closed on the TSE at $23.55 yesterday.
WestJet is the Calgary-based, no-frills, low-cost carrier modelled
after Southwest Airlines in the U.S. It has operated almost
exclusively in Western Canada until this year, when it chose
Hamilton, Ont. as its eastern hub.
The challenge is finding airplanes. Before its new services began in
March, it had 15 aircraft while Air Canada had 235. It recently
struck a deal with Boeing for 30 737s and options for 40 more that
will be leased or purchased before 2008.
More impressive, in the first quarter, which is usually slow and
unprofitable in the airline business, WestJet made $4.3-million (16½
a share) compared with $2.2-million (9½) in the comparable period
last year. April traffic was up 61% on a capacity increase of 47.2%,
and the load factor rose to 77% from 71% last year.
"An increase in load factor of this magnitude indicates a sharp
increase in margin and thus profitability," Jacques Kavafian of
Yorkton Securities said in a recent report.
"We believe this traffic growth will continue into the summer,
producing substantial profits for the company." He rates it a "strong
buy," with a 12- to 18-month target price of $50.
Dorel Industries, the Montreal-based designer, maker and marketer
of children's furniture, ready-to-assemble furniture and home
furnishings, saw its sales in the last quarter rise 26.3% ahead of the
same quarter last year.
Jay McKinnell of HSBC Securities said the company "remains
significantly undervalued in relation to its growth potential." He rates
it a "buy," with a target of $36.75. The stock (DIIb/TSE) closed at
$29.50 yesterday.
Ron Schwarz of CIBC World Markets said Dorel is currently
trading at 12 times and 10 times his 2000 and 2001
earnings-per-share estimates of $2.28 and $2.80, respectively.
He rates it as a "strong buy," with a target price of $40. |
