Inside the Market’s roundup of some of today’s key analyst actions
National Bank Financial analyst Vishal Shreedhar thinks Dollarama Inc. (DOL-T) is going to increasingly focus on international expansion through acquisitions as its next growth vector.
In a research report released Thursday, he argued the discount retailer has already “demonstrated the ability to successfully export its business model to different geographies” an sees its “strong cash generation (in excess of operational needs and current capital return programs), and a high/stable ROIC (highest in our coverage), suggesting strong utility on marginal growth capex.” He also thinks share buybacks, which have " materially” contributed to returns in the past, are “becoming less attractive as a capital deployment tool amid high interest rates and a 2-per-cent net share buyback tax.”
“Recall, in July 2023, we indicated that Dollarama reviewed a potential acquisition of The Reject Shop, a discount retailer in Australia, although discussions ultimately ended,” he said. “Our view is that Board approval to pursue global expansion did not end following discussions with that Australian retailer. Importantly, we understand that the Latin American Dollarcity business (including Mexican expansion) is being primarily run by local management, freeing up Dollarama management to pursue global growth opportunities. A
“As Canadian growth will inevitably fade, and Latin American expansion will increasingly add geopolitical complexity, Dollarama need not be an investment where its high-growth phase is approaching maturity. There is a credible path where Dollarama’s best days are still ahead, in our view.”
Mr. Shreedhar acknowledged many investors remain concerned Dollarama’s valuation multiple has “gotten ahead of itself” and questioned how they would “value a stable, long-dated high-growth, high return on capital international growth story.”
“There are precedents which suggest that valuation may not have peaked, though we acknowledge execution is key,” he said. “We believe acquisitions could be beneficial if executed in the right region, at the right price and with the right strategy (adhering to Dollarama’s operating approach/customer proposition).
“To be clear, we expect management’s primary focus to be ongoing growth in Canada; however, we believe Dollarama’s strong cash flow, industry-leading operating metrics, and success in developing its Latin American business gives it license to explore further opportunities.”
Maintaining an “outperform” rating for Dollarama shares, Mr. Shreedhar raised his target to $141 from $132 based on a higher valuation multiple to reflect his view of increasing global growth opportunities. The average target on the Street is $131.55, according to LSEG data.
“We believe Dollarama has a compelling growth vector in inorganic expansion,” he concluded. “That said, continued growth in existing markets is the key driver for the stock in the interim.
“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.”
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In a research report titled Take Advantage of the Quiet Summer, Ventum Capital Markets analyst Alex Terentiew said the fundamentals for the uranium market remain “clear” for longer-term investors, expecting prices to trend higher and “quality” companies to follow suit.
“The summer months in the uranium market have been quiet, with spot prices softening, equities similarly drifting lower, and term market volumes also less than half of those seen last year,” he said. “While 2023′s heightened activity may have pulled forward some of 2024′s demand, we see plenty of pent-up and growing demand poised to deliver a surge in activity. Despite the spot and equity market weakness, there has been continual news flow from government policymakers and utilities around the globe, as well as a growing list of electricity-hungry data centre and AI companies seeking more power to meet surging demand for computing power. Considering the long timelines required to design, build, and create the needed regulatory framework for new nuclear supply, we admit that timing the uranium cycle can be a challenge.”
Mr. Terentiew pointed to several catalysts to monitor in the market, including sulphuric acid supply shortages in Kazakhstan, political issues in Niger and uncertainty stemming from the approaching U.S. election. While equities have slid given the uncertainty in the market, exceeding the decline in spot prices, he emphasized fundamentals “remain strong.”
“Over the past three months, uranium equities have retraced the gains made in 2023, with most stocks down 25 per cent plus, exceeding the 10-per-cent drop in spot prices,” he said. “Yet term prices have held all their gains with the long-term price in fact up US$2/lb to US$82/lb. As such, we believe equity price weakness can be ascribed to investors placing too much emphasis on spot prices, and/or profit-taking, potentially locking in gains made over the past 12 months. Considering the unwarranted weakness, we, therefore, recommend investors step in at current prices to take advantage of the upside we expect to materialize as companies steadily advance their projects and ramp up production.”
His top long-term investment idea remains enCore Energy Corp. (EU-X) with a “buy” rating and $7 target. The average on the Street is $7.38.
“As one of the newest uranium producers in the U.S. with a production profile that we expect to garner more investor attention over the coming months, a strong balance sheet, and resource updates that we expect will illustrate more long-term value, we continue to view enCore as a lower-risk, steadily growing producer with valuation upside,” said Mr. Terentiew.
In the near-term, he thinks NexGen Energy Ltd. (NXE-T) could “outperform,” raising his target for its shares by $2 to $14 with a “buy” rating. The average is $13.12.
“In light of the significant NAV accretion we expect to materialize over the coming years, in conjunction with a likely, in our view, receipt of the federal environmental approval in the coming months, we have raised our valuation multiple on Rook 1 to 1.4 times, up from 1.0 times previously, which moved our target price up ... Our 1.4 times multiple is in line with the multiple we use to value currently operating mines, such as Ur-Energy’s (URE-TSX, BUY, PTC$2.75) Lost Creek ISR operation,” he said. “Partially offsetting the multiple bump is a 10-per-cent reduction in our NAVPS estimate as we also incorporated the new operating and capital cost guidance announced by NexGen on August 1.”
Mr. Terentiew lowered his IsoEnergy Ltd. (ISO-T) target to $6 from $7, which is the current average, with a “buy” rating.
“With its Tony M project in Utah advancing and first production by our estimate in Q1/26, and exploration at its Larocque East project and Hurricane deposit identifying new targets, we continue to believe ISO has significant long-term strategic value due to its ultra-high grade and location contiguous with Cameco and Orano’s Dawn Lake project immediately across the claim boundary to the west,” he said. “We have, however, trimmed our target ... as we incorporated some adjustments to our Tony M forecasts and trimmed our valuation multiple on Hurricane to reflect general weakness in the market.”
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TD Securities analysts Graham Ryding and Mario Mendonca expect EQB Inc.’s (EQB-T) credit trends and growth to improve in the next fiscal year.
In a research report, they lowered their 2024 estimates to reflect a “more conservative” provisions for credit losses (PCL) forecast, trimming their their third-quarter and full-year earnings per share estimates to $2.92 and $11.57, respectively, from $3.06 and $11.75.
However, they maintained their projections for 2025, including earnings per share of $12.80, up 11 per cent year-over-year.
“This reflects stable NIM vs. F2024, modest operating leverage, and lower interest rates supporting healthy loan growth (11 per cent year-over-year) and lower PCLs,” the analysts said.
Emphasizing their EPS projections reflect stronger growth than their forecasts for the large banks, they raised their target for EQB shares to $112 from $102 after adjusted their valuation methodology to be in line with their approach for the large banks. The average target on the Street is $105.44, according to LSEG data.
“We expect earnings growth to be muted in F2024 (higher PCLs, muted conventional loan growth), but improve in F2025 (stable NIMs, and lower rates support loan growth and lower PCLs),” they said, maintaining a “buy” recommendation.
“EQB has a strong credit track record, is well capitalized, and has consistently delivered solid earnings and BVPS growth. We believe there is a rarity factor for quality mid-sized banks in Canada, and we see value in EQB’s high ROE branchless model and digital bank.”
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Scotia Capital analyst Phil Hardie said catastrophe losses for both Definity Financial Corp. (DFY-T) and Intact Financial Corp. (IFC-T) “went from bad to worse” in the third quarter and are now “on track to exceed the elevated levels experienced in 2024.”
“Both companies reported surprisingly strong second-quarter results that were characterized by strong underwriting but also benefited from unseasonably low levels of catastrophe losses,” he said. “At the time, we re-timed the excess cats into the third quarter reflecting our expectation of a significant spike. Just a few weeks later, we find ourselves roughly doubling our forecast for third-quarter cat losses in the wake of a series of additional severe weather events, and Intact’s press release containing its estimated cat losses for Q3/24 quarter to date.
“The stocks have had a very solid run so far this year, with Intact up 26 per cent and Definity rising by 33 per cent. We expect the stocks to trade down by low- to mid-single digits in the near term, reflecting a downward revision to book value forecast combined with a degree of profit-taking. That said, we view this as a temporary setback that simply extends the investment horizon by a quarter as the growth in book value resumes. We expect the cat losses to further extend firm market pricing across personal property lines.”
Maintaining “sector outperform” recommendations for both companies, Mr. Hardie cut his target for Definity shares to $51 from $52 and Intact to $263 from $272. The averages are $53 and $267.53, respectively.
“We believe the cat losses are ultimately manageable and that our underlying investment thesis remains intact, but expect some near-term stock weakness and volatility,” he concluded.
Elsewhere, Jefferies’ John Aiken lowered his Intact target to $262 from $264 with a “hold” rating.
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Desjardins Securities analyst Benoit Poirier was “impressed” by several of BRP Inc.’s (DOO-T) product launches at its annual dealer event earlier this week in “stark comparison” to rival Polaris Inc.’s (PII-T) recent showcase.
However, he emphasized “it is clear that market conditions remain challenging (elevated inventory and high interest rates) and that further actions by BRP are needed.”
“Those dealers all provided positive commentary about BRP’s proactiveness in reducing production by 15–20 per cent (although it appears that more cuts will be needed),” he said. “They also mentioned that BRP was doing a better job when compared with other OEMs. The marine industry, especially the Switch pontoon, appears to be most impacted as this segment is skewed to young families, which are less resilient and more affected by the elevated rates. However, we got excellent feedback from dealers related to the 1.49-per-cent financing rate offered on some products, which seems to be a game changer and helps bring customers through the door.”
Expecting another guidance reduction in the second half of the year, Mr. Poirier lowered his fiscal 2025 and 2026 expectations, leading him to cut his target for BRP shares to $110 from $116 with a “buy” rating. The average on the Street is $98.78.
“While a guidance cut is never good news, we believe the market sentiment is already negative and a cut should be largely priced in by the time we get to 2Q results,” he said. “Given our new estimates are far from peak earnings ($12.05 was achieved in FY23) combined with Polaris’s current valuation multiples (see Exhibit 14), we do not see a lot of downside risk from a valuation standpoint, especially as investors look to front-run the upcoming interest rate cuts and given their eventual positive impact on the powersports/discretionary industries (Desjardins Economic Studies forecasts a 50 basis points cut in the US vs a 75 bps cut in Canada in 2H24, and a 125 bps and 150 bps cut, respectively, in 2025). As a result of our revised estimates, our target price moves to $110 (from $116 ) but we are maintaining our Buy rating. We expect the stock to find strong support at the $85–90/share level, which represents an 11 times P/E on our revised FY26 normalized fully diluted EPS estimate of $8.11.”
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Resuming coverage following the close of its $20-million private placement, Desjardins Securities’ John Sclodnick expects Integra Resources Corp. (ITR-X) to “re-rate from depressed developer valuations.”
On July 29, Integra announcement the acquisition of Florida Canyon Gold (FCGV-X) for $95-million in an all-share deal that includes the Florida Canyon open pit, heap leach mine in Nevada, which is near from its own Nevada North project. The analyst emphasized the deal will move the Vancouver-based “a from developer to producer status once the transaction closes, expected in late October.”
“The transaction provides Integra with immediate cash flow to be used to carry the company through exploration and permitting of the next two projects in its pipeline — DeLamar and Nevada North — and ultimately sets the company up to be a multi-asset producer in the Great Basin region of the U.S.,” said Mr. Sclodnick. “The assets are all open pit, heap leach mines and are all located within a three-hour drive, allowing for synergies in operational expertise, and personnel and equipment allocation.
“Gold developers currently trade at 0.46 times NAV, compared with junior gold producers at 0.60 times NAV; therefore, we see significant re-rate potential for Integra from its current valuation of 0.29 times NAV as it moves from developer to producer status with this transaction. Based on [Wednesday’s] closing price of $1.28, the stock would need to increase by 109 per cent to $2.67 to trade in line with junior producers.”
After increasing his net asset value model, Mr. Sclodnick bumped his target for Integra shares to $4 from $3.75, keeping a “buy” rating. The average is $3.85.
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In other analyst actions:
* Ahead of its Aug. 29 earnings release, Citi’s Paul Lejuez cut his Lululemon Athletica Inc. (LULU-Q) target to US$270 from US$300 with a “buy” rating, citing “a more competitive landscape and risk to LULU’s long-term margins,” , while Stifel’s Jim Duffy reduced his target to US$370 from US$416 with a “buy” rating. The current average is US$352.86.
“We anticipate 2Q EPS (8/29 after-market close) relatively in-line w/cons,” he said. “The focus will be on the recent pulling of the highly anticipated Breezethrough legging launch from stores/Ecom and its impact on 2H sales/margins. This most recent execution mis-step highlights potential issues facing LULU that could impact sales/margins longer-term (internal talent issues while facing more competition). Investors widely anticipate management will lower F24 guidance, though it’s debated how big the cut will be (our F24E of $13.24 is well below current guidance $14.27-14.47/cons $14.13). We believe management needs to address concerns about weak category trends, competitive threats and recent execution mis-steps, as well as levers LULU has to protect EBIT margin on weaker sales/GM. We model F25 EPS down yr/yr, and remain cautious near term, though we acknowledge sentiment is very negative and expectations are low, suggesting a balanced risk/reward into 2Q EPS.”
* Desjardins Securities’ Kyle Stanley increased his Canadian Net Real Estate Investment Trust (NET.UN-X) target to $6 from $5.25 with a “hold” rating to reflect “improved confidence in the underlying portfolio value.” The average is $6.32.
“2Q24 results were in line vs expectations,” he said. “The worst of the interest rate‒related headwinds appears to be behind NET, while success on the capital recycling front has improved pro forma leverage. NET’s 21per-cent price return since July positions it among the top performers in our coverage universe. With its P/NAV (5-per-cent discount) and FFO yield spread returning to LTA, NET remains fairly valued.”
* Stifel’s Justin Keywood bumped his target for Medexus Pharmaceuticals Inc. (MDP-T) to $3.50 from $3, keeping a “buy” recommendation. The average is $3.30.
“We increase our target price ..., predicated on an expected FDA approval of Treosulfan but also increased confidence of a cash flow-positive base business in the near-term,” said Mr. Keywood. “Although there remains regulatory and binary risk in predicting an FDA approval, our greater conviction stems from MDP reaffirming last week that an FDA response should come by late October, along with TREO already being approved and commercialized in Canada and the UK. The use of FDA consultants is believed to have led to the FDA accepting TREO for essentially a third review and de-risks the process, in our view. As we reevaluated our broader Pharma coverage, we believe MDP’s valuation has fallen too far at only 4 times expected EBITDA and highlights a solid risk-to-reward setup, ahead of the October catalysts and leading to our Buy view.”
* Canaccord Genuity’s Jeremy Hoy raised his New Gold Inc. (NGD-T) target to $4.50 from $4, keeping a “buy” rating. The average is $3.74.
“We reiterate our BUY rating and increase our target price ... following the release of NGD’s Q2/24 results and updates to our model,” he said. “New Gold is an intermediate producer with two mines in Canada - Rainy River (Ontario) and New Afton (British Columbia). We continue to like the company for its low jurisdictional risk profile and growth, coupled with declining unit costs, impressive FCF yields, and upside potential at its existing operations.”
* Piper Sandler’s Luke Lemoine hiked his target for Precision Drilling Corp. (PDS-N, PD-T) to US$112 from US$95 with an “overweight” recommendation. The average is $135.36 (Canadian).
* Following “mixed” second-quarter results, Canaccord Genuity’s Doug Taylor cut his Wishpond Technologies Ltd. (WISH-X) target to $1 from $1.25 with a “speculative buy” rating. The average is $1.32.
“Our positive thesis is based on the expectation of reaccelerating top-line growth, combined with an inexpensive current valuation,” he said. “With the benefits of margin improvement initiatives becoming more visible and the potential for positive FCF in short order, we believe the reduced risk provides a path to multiple expansion from the current 0.7 times forward sales.”