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February 25, 2010 Dear Friend,
We raised our price target
for Xstrata to $29 from $28 per share due to much better than
expected copper, nickel and zinc cost performance and our use of
higher met coal price estimates going forwards. We believe
Xstrata is a very robust long-term investment. However, we want
to stress we attempted to be very rigorous in several harsh
assumptions. We cut our terminal growth rate estimate by 1% to
4% from 5%, we estimated long-term capital outlays at $5.25
billion or nearly twice cap ex without incorporating specific
project benefits, we did not include possible Prodeco or Lonmin
asset sale proceeds and we used a 40% up from 30% long-term tax
rate.
We initiated coverage of
Packaging Corp. of America, the fifth largest containerboard
producer, with a $25 price target and a Neutral rating versus
its $23.69 price target. PKG is a niche-oriented, consistently
profitable supplier.
We believe our coverage of
PKG will make our coverages of International Paper and
Temple-Inland more effective. Further, we carefully model the
containerboard industry because we believe it exhibits many
similarities to the steel sector, and improves our research
coverages of Alcoa, U.S. Steel, Nucor and other domestic
companies.
We continue to schedule
one-on-one meetings for our March 24-25 conference, and invite
you to reserve one-on-one meetings. We also can arrange for
most of these companies to visit you in your own offices for our
"out-of-town" clients.
Faithfully,
John C. Tumazos
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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