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People shop in a Dollarama store in Montreal. (Christinne Muschi/Christinne Muschi/THE GLOBE AND)
People shop in a Dollarama store in Montreal. (Christinne Muschi/Christinne Muschi/THE GLOBE AND)

Eye on Equities

Buy Dollarama, not Tim Hortons: Canaccord Add to ...

Investors looking for bargains should look to Dollarama Inc. before pouring their dollars into Tim Hortons Inc. , Canada’s other high-growth defensive retailer, advises Canaccord Genuity analyst Derek Dley.

Dollarama shares have drifted lower since peaking at $45.48 on Dec. 23 and Mr. Dley sees a buying opportunity. He estimates that Dollarama trades at 17.6 times forward earnings per share versus Tim Hortons at a heftier 18.6 times.

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“We believe this is unjustified as Dollarama i) offers investors the most visible pipeline of growth in the Consumer Products space, ii) is able to manage margins through refreshing and repackaging its product offering, iii) has generated average same-store sales of 6.1 per cent since the beginning of F2011, iv) has superior profitability metrics across the board compared to its U.S. peers, and v) operates in a far less saturated Canadian market with 30,600 people per store (using the top 6 chains) compared to the U.S. with 14,500 people per store (top 6 chains).”

“In comparison, we believe Tim Hortons’ Canadian growth opportunities are limited as i) the company already controls roughly 80 per cent of the poured coffee market in Canada, and plans to increase its store base by 23 per cent. Given the company’s strong market share, we believe additional expansion will unfavourably impact existing store sales and profitability,” he said.

Upside: Mr. Dley raised his price target on Dollarama by $1 to $47 and reiterated a “buy.” He has a “hold” rating on Tim Hortons with a $48 price target.

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J.P. Morgan analyst Jeffrey Zekauskas has downgraded Potash Corp. of Saskatchewan Inc. to “neutral” from “overweight,” due to the company’s recent strong stock price performance. Mr. Zekauskas noted that fertilizer stocks have performed well since bottoming in mid-December and Potash Corp. is nearing his price target.

Upside: Mr. Zekauskas has a $48 (U.S.) price target.

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Belo Sun Mining Corp.’s Volta Grande project gold in Brazil is getting “bigger and better,” commented CIBC World Markets Inc. analyst Jeff Killeen after the company reported an 11 per cent hike in total resources to 3.8 million ounces. He sees that number continuing to grow this year, which should act as a significant catalyst to help the stock outperform peers.

Upside: Mr. Killeen raised his price target by 40 cents to $3 and maintained a “sector outperformer” rating.

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Mirabela Nickel Ltd. has released a fourth-quarter operating update that shows record performance in terms of tonnes mined and processed at its Santa Rita project in Brazil. But CIBC World Markets Inc. analyst Alec Kodatsky said that both nickel and copper recoveries remain below his expectations, “and the increased mine output appears to have come at much higher-than-expected costs.”

Downside: Mr. Kodatsky cut his price target by 45 cents to $1.75 and maintained a “sector performer” rating.

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Investors should buy shares of West African gold production and exploration company Endeavour Mining Corp. because of its significant near-term production growth, robust cash flow and strong balance, urged Raymond James Ltd. analyst Brad Humphrey. “We also believe that Endeavour has yet to be fully recognized in the market as a gold producer given its rapid move from merchant bank to junior producer, on its way to becoming, what we would categorize, as a small mid-tier producer.”

Upside: Mr. Humphrey initiated coverage with an “outperform” rating and six- to 12-month price target of $3.70 a share.

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