Downgrading Teck Resources after massive stock rally

Teck Resources Ltd.’s stock price is on an incredible run. It’s up more than 80 per cent because the company reported earnings on Feb. 11, and most 150 per cent since bottoming out in mid-January. Copper costs are up only modestly in that period.

National Bank analyst Shane Nagle thinks enough is sufficient. He downgraded the stock to underperform from sector perform, though he did increase his target price to $8 a share (from $6.25) to match some multiple expansion.

Nagle said the stock is now in a substantial premium to its trading range over the past three years, and appearance to be pricing in “at least” a 10-per-cent rise in base metal prices.

That said, he does see reason to become optimistic about Teck beyond improving market sentiment. He noted the Vancouver-based miner’s cost-cutting initiatives have paid off, and, unlike some of its rivals, it may handle its debt obligations.

Nagle also said that Teck is well-positioned to raise more capital from asset sales. That will alleviate some investor concerns concerning the company’s high debt and its $2.9-billion resolve for the Fort Hills oil sands project.

“Operating cost reductions continue to impress and many levers are for sale to the organization to generate capital, including non-core asset sales” he explained inside a note.