Inside the Market’s roundup of some of today’s key analyst actions
Following “strong” fourth-quarter 2024 financial results that capped an “exceptional” fiscal year, Stifel analyst Martin Landry expects the momentum to continue for Dollarama Inc. (DOL-T), predicting further market share gains and seeing its guidance “front-end loaded and conservative.”
However, he continues to wait for a “better entry point” from an investing perspective.
“In our view, at 24.5 times forward earnings, roughly one standard deviation above its 5-year average, there is a low likelihood of further valuation expansion from current levels,” he said. “We also see limited upside to our forecasts, and thus we believe DOL’s shares could be ranged-bound in the short-term.”
Shares of the Montreal-based discount retailer surged 10 per cent on Thursday following the premarket release of better-than-expected quarterly results and a 29.9-per-cent raise to its quarterly dividend (to 9.2 cents per common share).
“Dollarama reported impressive Q4FY24 results with EPS increasing 26 per cent year-over-year, higher than both our expectations for a growth of 15 per cent and consensus of 17 per cent,” the analyst said.
“Dollarama has gained market share in the last two years as frugal consumers changed their shopping patterns to offset inflation pressures and rising interest rates. Comparable sales growth increased by 12 per cent year-over-year and 12.8 per cent year-over-year, in FY23 and FY24, respectively, resulting in a two-year stack of 25 per cent year-over-year, one of its best performances ever. While other discount retailers such as Walmart Canada and Costco Canada have also performed well in the last two years with SSS [same-store sales] growth of 12 per cent and 19 per cent respectively on a two-year stack basis, Dollarama has significantly outperformed them. The introduction of the $5 price points has allowed Dollarama to broaden its product offering, increasing its relevance with Canadians.”
Mr. Landry calculates the company’s fiscal 2025 revenue and margin guidance translates into an earnings per share range of $3.80-$4.10, leading him to increase his estimate by 3 per cent to $3.98, representing a growth of 12 per cent year-over-year.
“Our revenue estimates remain largely unchanged with a comparable sales growth assumption of 4.3 per cent year-over-year, roughly in-line with DOL’s guidance for SSS to range between 3.5 per cent and 4.5 per cent,” he said. “We have reduced our gross margin assumption slightly to 44.7 per cent from 45.2 per cent on gross margin headwinds in H2FY25 due to higher logistics costs and increased shrink. However, our SG&A assumptions as a percentage of sales is reduced by 100bps reflecting higher than expected leverage on fixed costs as a result of the strong organic growth.”
Keeping his “hold” recommendation for Dollarama shares, Mr. Landry increased his target by $10 to $110, but he warned the appear “fully valued” and he does see growth slowing. The average target on the Street is $112.75, according to LSEG data.
“DOL’s shares are up over 50 per cent in the last two years and are trading at 24.5 times forward earnings, roughly 1.5 times higher than the 10-year average,” he said. “While Dollarama’s financial performance in recent years justifies a premium valuation, we do not see further multiple expansion potential from current levels. We see a risk of multiple contraction under a scenario where investors rotate into consumer cyclical names in 2024.”
“Dollarama’s pace of same-store-sales growth is expected to decelerate to 3.5-4.5 per cent in FY25 (calendar 2024) following two consecutive years of 12-per-cent-plus growth. We see a risk that the slowing growth rate translates into lower valuation multiples.”
Other analysts making changes include:
* Scotia Capital’s George Doumet to $113 from $107 with a “sector perform” rating.
“Q4 results beat on all fronts (comps, margins, Dollarcity) and saw a healthy (30-per-cent) boost to the dividend. F25 guidance at the mid-point/high-end is ahead of EBITDA street expectations by 3 per cent/6 pr cent,” he said. “While there is an expectation that there is an element of conservatism in the guidance (in typical DOL fashion), we do highlight that basket is down for the quarter (and likely for F25), implying that traffic would need to grow 6 per cent (on top of 13 per cent in F24) in order for DOL to attain its annual SSSG target.
“All in all, we prefer more value-oriented discretionary names (especially as we get closer to that first rate cut) over ‘defensive growth’ DOL , which is trading at a 13-per-cent premium over historical average - despite expectations for SSS and EPS growth to decelerate over the NTM [next 12 months] (from 13 per cent to 4 per cent and 29 per cent to 12 per cent).”
* National Bank’s Vishal Shreedhar to $120 from $112 with an “outperform” rating.
“We hold a positive view on DOL’s shares given its defensive growth orientation supported by strong cash flows, a solid balance sheet and resilient sales performance,” said Mr. Shreedhar.
* Desjardins Securities’ Chris Li to $120 from $107 with a “buy” rating.
“Strong 4Q results and a solid FY25 outlook reflect continuing robust demand from value-seeking consumers and rational competition,” said Mr. Li. “We expect strong growth at Dollarcity to continue, with upside to its long-term store target. Even though growth will normalize, we believe DOL’s premium valuation is supported by high earnings visibility (with upside) as other retailers remain challenged in the near term. The main risk is likely sector rotation. Applying the five-year average P/E implies a $99 valuation.”
“Our positive long-term view is based on structural industry tailwinds and the strength/resilience of DOL’s business model across all economic cycles.”
* RBC’s Irene Nattel to $125 from $118 with an “outperform” rating.
“Strong F24 results and F25 guidance are supportive of our constructive view and investment thesis, and DOL’s premium valuation,” said Ms. Nattel. “SSS moderating as expected but FQ4 up 8.7 per cent (two-year stack 24.6 per cent) better than expected on strong traffic up 11.2 per cent as pressure on disposable income drives value-oriented consumer behaviours. Q4/F24 EPS growth 26.4 per cent at very high end of coverage universe. F25 guidance likely conservative, implies normalization toward historical SSS growth rate, which remains at the high end of our coverage universe. We reiterate our view of DOL as the best positioned Canadian retailer for the current macro backdrop.”
* BMO’s Tamy Chen to $124 from $105 with an “outperform” rating.
“F2025 SSS guidance and management’s tone was better than we expected,” she said. “The company expressed confidence at being able to grow SSS in F2025, driven by continued strong trends at store-level, merchandise refreshes, and population growth. The other standout was strong growth at Dollarcity (DOL’s equity pick-up in F2024 increased 66 per cent year-over-year and Dollarcity declared a first-ever US$80-million dividend).”
* CIBC’s Mark Petrie to $115 from $109 with a “neutral” rating.
* TD’s Brian Morrison to $113 from $106 with a “hold” rating.
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Pointing to its “premium” return on equity and believing its growth is “deserving” of a premium valuation, BMO Nesbitt Burns analyst Sohrab Movahedi upgraded Royal Bank of Canada (RY-T) to “outperform” from a “market perform” recommendation on Friday.
“RY is a premium ROE bank, building on its leadership in Canadian Banking with its recently closed acquisition of HSBC Canada, and well-positioned to benefit from an anticipated rebound in markets related activities through both its Wealth Management segment (well-endowed with high net worth and ultra-high net worth clients) and its Capital Markets division (with a prominence in North America but also global recognition),” he said.
“Our EPS forecasts have RY growing EPS at peer-leading levels (along with CM) in the high-single digits in F25.”
Mr. Movahedi raised his target for RBC shares to $150 from $140, exceeding the $142.94 average on the Street.
The upgrade came alongside several other target price increases in a research report released Friday.
“We expect the headwinds of double-digit expense growth against a more muted revenue growth, proactive reserve building against a back-drop of rising interest rates, and eroding ROEs given rising regulatory capital requirements which have weighed on the Canadian bank fundamentals and stocks over the past couple or so years to hit an inflection point in Q2/24,” the analyst said. “We see prospects of improving earnings trajectory helped by moderating expense growth and improving pre-tax preprovision earnings growth, easing of further reserve building requirements and the potential for a recovery in ROEs (helped by the elimination of DRIP discounts) supportive of a higher valuation multiple for the Canadian bank index. As such we increase our target forward P/E multiple to 11.0 times (middle of the historical 10–12 times range) from 10.3 times, and commensurately individual bank target prices for the large banks in our coverage.”
Mr. Movahedi’s adjustments are:
- Bank of Nova Scotia (BNS-T, “market perform”) to $74 from $69. Average: $67.40.
- Canadian Imperial Bank of Commerce (CM-T, “outperform”) to $74 from $68. Average: $67.86.
- National Bank of Canada (NA-T, “outperform”) to $121 from $109. Average: $112.42.
- Toronto-Dominion Bank (TD-T, “market perform”) to $86 from $81. Average: $88.80.
“It has been a tough stretch for the Canadian bank index with seven consecutive quarters of negative operating EPS growth for the group,” Mr. Movahedi said. “The trifecta of higher minimum regulatory capital requirements (Recall, OSFI increased both the upper bound and active level of DSB throughout 2023), more than doubling of provision for credit losses in the last 12 months (driven in part by the pro-cyclical reserve building requirements under IFRS9 accounting), and double-digits non-interest expense growth (in part hurt by persistently high inflation) has not only hurt earnings growth but shaved off nearly 200 basis points of ROE and 10bps of ROA from the industry’s profitability in the past year. We expect these trends to start reversing throughout FY24 and FY25 for the Canadian banks given positive momentum in the following key earnings growth drivers.”
“Given these expectations, and the historical relationship between earnings growth and price-to-earnings valuation multiple relationship for the Canadian banks, we are raising our target PE multiple for the bank index to 11.0 times from 10.3 times currently. As such, our target prices for each bank increase, and we upgrade RY to Outperform. RY (benefiting from an in-market acquisition and anticipated rebound in marketsrelated businesses) joins our Outperform-rated names, alongside NA (highest ROE), and CM (Canadian Banking momentum and peer-leading expense management) among the large banks.”
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National Bank Financial analysts Shane Nagle and Rabi Nizami think a “sentiment driven” rally has pushed copper prices higher, “supporting sustainable multiple expansion.”
“Despite elevated copper inventories and pending supply growth through H2/24 - 2025, improving manufacturing numbers out of China, pending rate cuts and view of more long-term electrification demand resulting from AI have driven a significant increase in speculative interest in copper markets over recent weeks,” they said. “As a result, we have increased our near-term copper price outlook (aligning with prices at the end of Q1/24).
“EV/CF [enterprise value to cash flow] multiples had remained near trough levels throughout much of the past two years while copper prices remained range-bound, with improving sentiment and no change to our positive longer-term outlook. Multiples have gapped up to the upper end of historical ranges - something we believe is sustainable given longer-term supply constraints, a shift in market sentiment towards commodity producers/cash flowing assets and scarcity value within the sector.”
In a research report released Friday, the analysts emphasized the key themes for the year ahead are likely to be project execution and base metals sector consolidation.
“Several companies within our coverage universe are scheduled to complete transformational development projects this year,” they said. “Thus far, valuations remain fairly well supported; however, investors are most likely to reward those able to hit production targets, keep costs under control and maintain development schedules. Additionally, the lack of robust copper growth pipelines for industry majors and positive long-term fundamentals remain supportive of continued consolidation. We highlight TECK/B and MTAL as being well positioned to consolidate assets and CS, FIL and SLS as acquisition targets.”
With the increases to their copper price forecast, the analysts made a series of target price adjustments to stocks in their coverage universe.
For their top picks, their changes are:
* Capstone Copper Corp. (CS-T, “outperform”) to $10.50 from $8.75. Average: $8.77.
Mr. Nagle: “Management is solely focused on delivering the Mantoverde and Mantos Blancos expansion projects in 2024 and in doing so, we believe CS will be the name investors will pivot to under an improved backdrop for copper prices given several transformational growth projects in the pipeline and a team in place to deliver its stated growth objectives.”
* Metals Acquisition Ltd. (MTAL-N, “outperform”) to US$16 from US$15. Average: US$14.50.
Mr. Nagle: “Continued optimization of the CSA mine, future exploration potential and management’s expertise in reducing operating costs to drive highermargin production growth in the near term are all supportive of a re-rating.”
* Teck Resources Ltd. (TECK.B-T, “outperform”) to $77.50 from $77. Average: $63.95.
Mr. Nagle: “Divestiture of the steelmaking coal business provides significant cash to bolster the balance sheet ahead of delivering the next leg of copper growth as well as returning cash to shareholders - both supportive of a re-rating.”
* Filo Corp. (FIL-T, “outperform”) to $36 from $35. Average: $31.27.
Mr. Nizami: “The 2024 drill program, while continually stepping into new mineralization is now also closing off large gaps to connect multiple discoveries.”
The analysts’ other changes are:
- Adventus Mining Corp. (ADZN-T, “outperform”) to 65 cents from 60 cents. The average on the Street is 80 cents.
- Altius Minerals Corp. (ALS-T, “outperform”) to $25 from $23. Average: $23.47.
- Ero Copper Corp. (ERO-T, “sector perform”) to $32.50 from $24. Average: $24.70.
- First Quantum Minerals Ltd. (FM-T, “outperform”) to $18 from $16.50. Average: $16.61.
- Foran Mining Corp. (FOM-T, “outperform”) to $5.75 from $5.50. Average: $5.14.
- Hudbay Minerals Inc. (HBM-T, “sector perform”) to $12 from $8.75. Average: $10.55.
- Lundin Mining Corp. (LUN-T, “outperform”) to $16.50 from $12.50. Average: $13.23.
- Solaris Resources Inc. (SLS-T, “outperform”) to $8.50 from $8. Average: $16.75.
- Taseko Mines Ltd. (TKO-T, “sector perform”) to $3.75 from $2.50. Average: $3.39.
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Analysts at National Bank Financial see the expectation for declining real rates supporting precious metal prices with equity valuations remaining near trough levels.
“We outlined a constructive outlook for precious metal prices within our 2024 Year Ahead Thematic,” they said in a research report. “With an improving outlook for declining real rates, heightened geopolitical risk and continued strong global central bank purchases, gold/silver prices have responded favourably up 11.1 per cent and 14.2 per cent year-to-date, respectively. We’ve updated estimates and price deck on the back of a strong gold tape to start the year which has seen numerous names across our coverage show significant share price gains.”
“Despite the significant increase in precious metal prices, equity valuations remain near trough levels and are poised to play catch up. Generally, we believe under this scenario, the best gold companies to invest in are those with well-funded near-term production growth, a strong balance sheet and upcoming catalysts. As inflationary pressures subside and costs stabilize, companies will have more confidence in allocating excess cash flows towards shareholder returns. Given anticipated volatility and elevated precious metal prices, names that exhibit the most sensitivity to gold prices include: FR, EQX and ORA.”
After increasing the firm’s long-term gold price estimate to US$1,700 per ounce (from US$1,650), the group see market conditions remaining supportive of consolidation.
“We continue to see support on key themes throughout the year including strong FCF generation and increased consolidation throughout the sector. Names that continue to screen well as targets for M&A include AYA, ARIS, ELD, EQX and KNT, while potential acquirers include K, AEM and CG. Names that exhibit the highest beta to gold include CDE, IMG, IAU and LGD,” they said.
The analysts adjusted their target prices for stocks across their coverage universe to reflect their new price deck assumptions. For senior producers, their changes are:
- Agnico Eagle Mines Ltd. (AEM-T, “outperform”) to $105 from $85. The average is $89.74.
- Barrick Gold Corp. (ABX-T, “sector perform”) to $30 from $24. The average is $27.71.
- B2Gold Corp. (BTO-T, “outperform”) to $6 from $5.25. Average: $5.96.
- Endeavour Mining Corp. (EDV-T, “outperform”) to $41 from $37. Average: $36.60.
- Kinross Gold Corp. (K-T, “outperform”) to $13.50 from $10. Average: $9.69.
- Newmont Corp. (NGT-T, “outperform) to $71 from $54. Average: $54.55.
“Our overall top picks are unchanged as presented in our Year Ahead Thematic: Seniors: Kinross Gold (K, OP, $13.50 target), Pan American Silver (OP, $32.00); Intermediates/Juniors: Aya Gold & Silver (AYA, OP, $16.50) and OceanaGold (OGC, OP, $4.75); Royalty Companies: Osisko Gold Royalties (OP, $26.00); Developers: Artemis Gold (OP, $12.75) and G Mining Ventures (OP, $2.75),” they said.
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In other analyst actions:
* RBC’s Geoffrey Kwan raised his AGF Management Ltd. (AGF.B-T) target to $10 from $9 with a “sector perform” rating. Other changes include: BMO’s Tom MacKinnon to $9 from $8.50 with a “market perform” rating, CIBC’s Nik Priebe to $14 from $11 with an “outperformer” rating and Jefferies’ Aria Samarzadeh to $11 from $9 with a “buy” rating. The average is $10.71.
“Q1/24 EPS was well ahead of our forecast driven by higher-than-forecast fair value gains in their Alternatives platform (adjusting for that, results were generally in line with our forecast),” said Mr. Kwan. “We think these results provide incremental evidence of potentially further valuation upside in the share price from their Alternatives platform, which is still relatively nascent and not at-scale, but has the potential to diversify earnings. The retail fund business appears to continue performing well vs. the industry, but a 3rd consecutive quarter of net redemptions demonstrates they are not immune to industry substantial net redemption challenges. While we have a neutral view on our asset/wealth manager coverage, we think AGF could appeal to small cap investors with a longer-term investment horizon.”
* Stifel’s Michael Dunn raised his Arc Resources Ltd. (ARX-T) target to $29 from $25 with a “buy” rating. The average is $26.88.
* RBC’s Doug Miehm increased his Bausch Health Companies Inc. (BHC-N, BHC-T) target to US$12, above the US$10.33 average, from US$9 with a “sector perform” rating.
“In the coming days/weeks, we expect the highly anticipated Xifaxan patent litigation ruling by the Appellate Court,” said Mr. Miehm. “The decision is likely to inform and influence BHC’s ability to pursue a BLCO distribution, and as such it could unlock material value for BHC and BLCO shareholders. While there are other factors to be considered prior to a distribution, we believe a favourable ruling in the Xifaxan patent litigation would likely position BHC to pursue a distribution and lead to higher share prices. Based on our work, we see 76-per-cent probability that BHC is able to pursue a distribution.”
* TD Cowen’s Daniel Chan cut his D2L Inc. (DTOL-T) target to $13, matching the average on the Street, from $13.50 with a “buy” rating, while RBC’s Paul Treiber raised his target to $15 from $13 with an “outperform” rating.
“D2L reported healthy Q4 results, marginally ahead of consensus,” said Mr. Treiber. “The mid-point of FY25 guidance was slightly below consensus, but the outlook implies a modest acceleration in revenue growth along with 700 bps margin expansion. Beyond FY25, we anticipate continued healthy growth and further margin expansion. Maintain Outperform, given 40-per-cent earnings growth from CY24 to CY25 due to sustained healthy revenue growth and further operating leverage.”
* Stifel’s Cody Kwong hiked his Headwater Exploration Inc. (HWX-T) target to $10 from $8.75 with a “buy” rating. The average is $8.89.
“Headwater released an operational update following an active 1Q24 drilling campaign that does carry positive NAV and inventory implications with new areas/horizons tested in Marten Hills West, West Nipisi, Heart River, Seal and Handel. Early test rates show encouraging signs of commerciality in these new regions, which will need to be confirmed with further production history gathered in the months ahead. Headwater’s base capital program did deliver as expected with 1Q24 volumes tracking consensus at 19,500 boe/d. Keeping our target multiples intact from our last update, but also honouring the recent strength in crude oil prices, we are increasing our target price,” he said.
* BMO’s Jackie Przybylowski bumped her Iamgold Corp. (IAG-N, IMG-T) target to US$4.25 from with an “outperform” recommendation. The average is US$3.46.
“IAMGOLD is better-poised to take advantage of current high gold prices by deferring its obligation to deliver on the gold prepay arrangement previously agreed for Q2/24,” she said. “Bringing cash flows forward increases our IAMGOLD target (calculated 50 per cent on NAV and 50 per cent on NTM [next 12 month] CFO) and raises leverage to current strong commodity prices. We maintain our Outperform rating - IAMGOLD has had a string of good news recently including this as well as first gold at Côté.”
* Canaccord Genuity’s Katie Lachapelle moved her Lithium Ionic Corp. (LTH-X) target to $3.25 from $3 with a “speculative buy” recommendation. The average is $4.70.
* In response to the late Thursday announcement of the achievement of “significant” milestones for its Cedar LNG joint venture project with the Haisla Nation, ATB Capital Markets’ Nate Heywood raised his Pembina Pipeline Corp. (PPL-T) target by $1 to $56, exceeding the $53.27 average.
“Overall, the announcement provides material confidence in the project’s viability and we are constructive on the growth outlook given the Company’s ability to deploy capital and successfully develop projects that preserve economics,” he said.
David Leeder