Inside the Market’s roundup of some of today’s key analyst actions
Derek Dley, an analyst at Canaccord Genuity, maintained a “hold” recommendation on Dollarama Inc. (DOL-T) but raised his target price on the stock to $85 from $82 previously after the Canadian discount retailer reported its latest impressive quarterly results on Wednesday.
The analyst’s new target reflects a valuation of 26.5-times his earnings estimate of $3.20 per share for fiscal 2024, which he considers “appropriately” valued.
“While we still believe in Dollarama’s long-term growth profile — a result of its lack of meaningful competition, industry-leading profitability and free cash flow generation, and healthy return on invested capital — we believe the shares are appropriately valued given the context of its near to medium-term earnings growth outlook,” Mr. Dley said in a note.
Dollarama reported revenue of nearly $1.3-billion during the quarterly, higher than the average estimate from analysts and up 21 per cent from the same period last year. The increase was driven partly by the net addition of 21 new stores.
Profit also beat expectations, with net earnings of 63 cents per share, compared with an average estimate of 59 cents per share from analysts.
One of the more impressive figures: Dollarama reported sales growth of 17.1 per cent at stores open for at least a year. This growth consisted of a 15.5 per cent gain in the number of transactions and a 1.4 per cent gain in the basket size of shoppers.
“All product categories demonstrated growth during quarter, with consumables continuing to have a higher exposure within the mix, albeit demonstrating signs of normalizing,” Mr. Dley said.
Chris Li, an analyst at Desjardins Securities, kept his “buy” recommendation on Dollarama and a price target of $93 on the stock, which is based on the stock trading at 25.5-times 2025 earnings.
The latest financial results, he said, reaffirm his expectation for earnings per share (EPS) growth of 14 to 15 per cent this year while the discount retailer maintains its value proposition over the competition. As well, products priced $4.25 and above enhance “the treasure hunt experience with new products,” Mr. Li said.
“We maintain our positive view and expect share price appreciation to largely track EPS growth (mid-teens percentage). The key risk is likely funds flow out of defensives,” Mr. Li said.
Irene Nattel, an analyst at RBC Dominion Securities, raised her price target on Dollarama to $101 from $98 previously, while maintaining an “outperform” recommendation on the stock, citing strong same-store sales as a key reason to stick with the retailer with a premium valuation.
The exceptionally strong same store sales, she said in a note, “reflects strong value positioning, particularly sought after in the current high inflation environment, and overall financial results reinforce management focus on productivity and efficiency.”
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Fadi Chamoun, an analyst at BMO Capital Markets, trimmed his target price on Canadian Pacific Kansas Southern (formerly Canadian Pacific Railway Ltd.) (CP-T) to $128 from $130 previously, while maintaining an “outperform” recommendation on the stock.
“The freight cycle remains muted and near-term trends are underperforming even our below consensus expectations across our entire coverage in freight transportation,” Mr. Chamoun said in a note.
For example, shipping volumes are on track to decline 5.5 per cent in the second quarter, compared with the same quarter last year. That marks a sharper decline from an earlier estimate of a 1.4 per cent decline.
“While some pressure should prove transitory (grain, potash, and to a lesser degree autos), performance in several segments is underperforming including intermodal (specifically domestic intermodal), chemicals/plastics/petroleum, and residential construction (forest products) reflecting a weak macro,” Mr. Chamoun said in his note.
He reduced his earnings estimate in the second quarter to 92 cents per share from $1.06 per share.
However, he remains upbeat about the stock, given the longer-term benefits from the recent combination of the two railways, following a merger.
“We continue to expect that the combination of the Canadian Pacific and Kansas City Southern networks will catalyze a period of strong organic growth that is expected to extend well into the coming decade. We continue to recommend that investors consider CPKC as a core holding in transportation,” he said.
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Drew McReynolds, an analyst at RBC Dominion Securities, raised his target price on Transcontinental Inc. (TCL-A-T) to $20 from $19, while maintaining an “outperform” recommendation on the stock after he bumped up his profit estimates following better-than-expected quarterly results.
“While we expect choppier printing performance to weigh on the stock in the near-term, we believe first quarter results were likely the trough quarter for operating performance this cycle,” he said in a note.
He expects improved volume momentum starting in the second half of the year within the company’s packaging division, while the company’s printing division should benefit from cost savings.
With Trancontinental trading at a discount to peers, he added, “we continue to see value in the stock given management’s track record of solid execution, about $2.25 per share in normalized free cash flow and each 0.5x increase in multiple equating to about $3/share.”
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Joo Ho Kim, an analyst at Credit Suisse, raised his target price on Toronto-Dominion Bank (TD-T) to $88 from $85 previously and upgraded his recommendation on the stock to “outperform” from “neutral” – even as an expected further deterioration in net interest margins and credit offer challenges to the Canadian banking sector’s growth outlook.
Part of the upgrade relates to the fact that TD shares have underperformed other Canadian banks this year, particularly as investors were faced with uncertainty over TD’s deal to acquire First Horizon Corp. (FHN-N) – a deal that was recently terminate. However, the bank has delivered strong results before provisions for credit losses are factored in.
“Post the termination, we believe the bank’s excess capital position skews the risk-reward profile for the bank (despite some timing and directional uncertainty),” he said in a note.
With the upgrade, TD is now the analyst’s top pick among Canadian banks, followed by National Bank of Canada, Bank of Montreal and Royal Bank of Canada.