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Dollarama price target upgraded; Saputo faces challenges

Montreal-based Dollarama has a debt/equity ratio below 30 per cent, and a return on equity over 20 per cent.

Deborah Baic/The Globe and Mail

Dollarama may be poised to surprise investors with strong earnings when it reports earnings next week, said Raymond James Ltd. analyst Kenric Tyghe.

"Our first-quarter selling, general and administrative (expense) margins of 18.4 per cent could prove too conservative, with possibly lower than expected labour and transportation costs, contributing to a positive earnings surprise," he wrote in a research note. Same-store sales are likely to show that price increases more than offset a decline in traffic, as consumer confidence remains weak, he said.

Target: Mr Tyghe raised his price target to $75 from $67 and rates the stock "market perform."

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Saputo Inc. missed earnings estimates and faces strong competitive pressures, with limited volume growth in Canada, said CIBC World Markets Inc. analyst Mark Petrie.

"The U.S. business is contending with the same volume challenges, but amidst an increasingly intense competitive environment. Previously content to preserve margins at the expense of volumes, Saputo saw trends worsen and was forced to respond. This dynamic could prevail for the year," he wrote in a research note.

"Our forecasts are moderated, and we now expect earnings before interest, taxes, depreciation and amortization of $1.05-billion in 2014, with 3 per cent growth in 2015. Though most staples stocks have seen valuations expand, we are not prepared to boost our multiples in the face of such modest organic growth."

Target: Mr. Petrie rates the stock "sector perform" and has a $50 price target.

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TeraGo Inc. is likely to receive a boost from the acquisition of Data Centers Canada, says Dvai Ghose, an analyst at Canaccord Genuity Corp.

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The acquisition should add $2.8-million in revenue in 2014 and management expects an immediate boost to the bottom line.

TeraGo, which provides wireless services to small- and medium-sized businesses, is "deeply oversold" according to Mr. Ghose, given the potential for growth that the acquisition opens up.

Target: Mr. Ghose raised his price target for the shares to $14 from the previous $12, and maintained his "buy" recommendation.

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Don't be fooled: Laurentian Bank of Canada is on its way to higher earnings and dividends, says Michael Goldberg, an analyst at Desjardins Securities Inc.

While the integration costs involved in the bank's recent acquisitions of MRS and AGF Trust are masking the positives for now, Mr. Goldberg believes the takeovers are having the desired effect of shielding Laurentian from intense competition in its core banking business.

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As earnings increase, Laurentian shares have the potential to climb from what Mr. Goldberg calls their "current depressed value."

Target: Mr. Goldberg is maintaining his "buy" rating and $55-a-share target price.

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Under Armour Inc., maker of fashionable apparel for the musclebound set, is poised to add even more heft, according to Camilo Lyon, an analyst at Canaccord Genuity Corp.

The company "remains one of the few brands with a significant global growth opportunity to pursue," he wrote after attending the company's analyst day.

He expects it to meet, if not beat, its three-year goal of expanding sales by at least 20 per cent a year.

Target: Mr. Lyon maintains his "buy" rating and $68 (U.S.) price target.

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About the Authors
Deputy head of Audience

Sonali Verma is deputy head of audience at the Globe and Mail. She is a business journalist with more than 20 years of experience, mainly in digital media.She was previously the Globe and Mail’s senior editor in charge of audience engagement, overseeing its homepages as well as social media operations. More

Ian McGugan is a reporter with The Globe and Mail's Report on Business and has been writing about investing, economics and business for more than 20 years. He joined the Globe and Mail in 2010. He has been executive editor of Canadian Business magazine and founding editor of MoneySense magazine. More

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