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Investment Ideas Analysts insist Dollarama still a great buy despite investor skepticism

Shoppers at the Dollarama store on Spadina Avenue in Toronto on June 13, 2012.

Deborah Baic/The Globe and Mail

These are some of the key analyst actions on Bay Street today.

Investors in Dollarama Inc. are getting pretty hard to please.

The company in pre-market trade this morning reported a 32 per cent jump in quarterly profit, which topped Street forecasts - but only by about an extra 2 cents per share. Dollarama has made a habit of beating the consensus view, and usually by a wider margin, which may explain why the stock is down about 1.5 per cent this afternoon after initially surging at the open.

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Some are no doubt worried that the company's valuation is getting overheated. The stock is up more than 30 per cent so far this year, trading at about 22 times earnings.

Still, several analysts think the stock can keep charging ahead.

"It does trade at a lofty multiple, but I think it's justified, given that, in my view, Dollarama offers the most visible growth pipeline in the consumer products space," Canaccord Genuity analyst Derek Dley was quoted by Reuters as saying.

Mr. Dley said he thought results were strong across the board. Second-quarter earnings were at 66 cents a share, with same-store sales climbing 7.3 per cent.

Irene Nattel is similarly impressed over at RBC Dominion Securities. She raised her price target by $2 to $69, commenting that Dollarama remains her favourite retailer. Her target is slightly ahead of the average Street forecast of $67.09.

Ms. Nattel's price target represents 20 times fiscal 2014 estimated earnings per share, which is higher than most peers. But she believes this is warranted, given its "ability to deliver 17 to 27 per cent organic EPS growth over our forecast horizon in a challenging retail environment."

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GasFrac Energy Services Ltd.

The board of GasFrac Energy Services has launched a formal search process for a new CEO and is conducting "an operational review" that Raymond James analyst Andrew Bradford thinks could mean possible sales of underutilized assets. "While we don't see any positive short-term implications from these announcements ... we think all of the board's initiatives have positive implications for the company in the mid to long term," he said in a note.

Upside: Mr. Bradford upgraded GasFrac to "market perform" from "underperform" and maintained a $3 price target.

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MacDonald Dettwiler & Associates

MacDonald Dettwiler & Associates shares are up about 25 per cent since the company announced the acquisition of satellite maker Space Systems/Loral Inc. at the end of June. Raymond James analyst Steven Li recommends investors now take profits, given that earnings at Space Systems/Loral are trending lower and there are indications that satellite orders could weaken later this year.

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Downside: Mr. Li downgraded the stock to "market perform" from "outperform" and cut his price target by $6 to $55.

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Niko Resources Ltd.

Niko Resources' success in Indonesia to date is now zero for three, after reporting its Labah-1 well has been abandoned after disappointing exploratory drilling results. Raymond James analyst Rafi Khouri slashed his net asset value estimates for the company, but said he continues to see value in Niko's deeper offshore Indonesia targets.

Upside: Mr. Khouri cut his price target by $10 to $20 and maintained an "outperform" rating.

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Bauer Performance Sports Ltd.

The threat of an NHL lockout on near-term sales at Bauer Performance Sports appears limited, said RBC Securities analyst Tal Woolley. He notes that during the last NHL lockout, which occurred while the company was still part of Nike, sales actually increased. NHL players, after all, represent only a tiny fraction of worldwide hockey players. Meanwhile, Bauer benefits from not having to pay out endorsement contracts if players are not on the ice, he pointed out.

Upside: Mr. Woolley has an "outperform" rating on Bauer with an $11 price target.

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Follow Darcy Keith on Twitter at #eyeonequities

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