Shares in Air Canada really took off last year, gaining more than 160 per cent as recession-weary consumers returned to the skies in big numbers.
But, according to RBC Dominion Securities Inc., storm clouds are on the horizon for Canada's largest air carrier and the company's growth could slow as near-term headwinds pick up.
RBC analyst Walter Spracklin is warning that rising fuel costs, potential labour disruptions and increased competitive pressures mean stock gains this year will be much less impressive.
Labour issues could be particularly problematic. During its financial crisis, Air Canada was able to negotiate 21-month "cost neutral" labour agreements that are set to expire at the end of this March. That means the airline will be facing all five of its unions in the first half of this year.
Given Air Canada's much improved financial position, he thinks there's a possibility that it will have to make some significant concessions at the bargaining table.
"At the very least, we see increased concern being built into the shares from a sentiment perspective until the labour issue is resolved," Mr. Spracklin wrote in a note.
Meanwhile, there's that concern over rising jet fuel and its impact on margins. He estimates that for every $1 (U.S.) a barrel rise in crude prices, the company takes a $20-million hit on its earnings.
Mr. Spracklin now forecasts the company's earnings before interest, taxes, depreciation, amortization and rent will hit $1.158-billion in 2011, down from earlier estimates of $1.270- billion.
Downside: RBC downgraded the stock to "sector perform" from "outperform," and cut its price target by $1 to $4.
Analysts are turning more bullish on Magna International Inc. after the auto parts maker released better-than-expected 2011 guidance. UBS increased its margin forecast for the company, encouraged by its restructuring efforts at North American and European operations.
Upside: UBS hiked its 12-month price target by $16 (U.S.) to $72 while CIBC World Markets Inc. raised its price target by $7 to $68.
Argosy Energy Inc. has a significant land position in the Alberta Bakken formation, an undeveloped area that some analysts speculate could be the next big North American light oil play. Argosy has already drilled a successful vertical well and the company "has the potential for high risk, high reward in this developing play," said Canaccord Genuity analyst Frederick Kozak.
Upside: While maintaining a "speculative buy" rating, Mr. Kozak raised his target price to $3.50 from $1.75.
Exfo Inc. delivered surprisingly strong first-quarter results and impressive guidance for the second quarter, thanks to robust growth both organically and through acquisitions, noted TD Newcrest analyst Chris Umiastowski. Exfo, which sells test equipment in fibre optic communications, is becoming a leader in many of its new markets, he said.
Upside: Mr. Umiastowski hiked his 12-month target price by $2 (U.S.) to $9.
Apple Inc. will deliver sold results over the next few quarters thanks in part to iPhone upgrades and iPad sales, said Scotia Capital Inc. analyst Gus Papageorgiou. But he cautions the Street may be expecting too much benefit from Verizon now selling the iPhone, since many of its customers aren't eligible yet for an upgrade and Verizon already offers several competitively priced Android smartphones.
Upside: Mr. Papageorgiou has a one-year target of $370 (U.S.) on Apple stock.