Inside the Market’s roundup of some of today’s key analyst actions
Desjardins Securities analyst Chris Li does not expect a “beat and raise” when Dollarama Inc. (DOL-T) releases its second-quarter fiscal 2025 report on Sept. 11, however he thinks the results should reflect “continuing same-store sales growth normalization with solid demand for consumables.”
“Given the uncertain state of the consumer, which could impact discretionary categories, we have moderated our FY25 SSSG to 4.0 per cent from 4.4 per cent (vs 3.5–4.5 per cent guidance and 4.3 per cent consensus),” he said in a note released Monday.
Mr. Li is currently projecting earnings per share of 97 cents for the quarter, matching the Street’s expectation. That is driven by same-store sales of 4.5 per cent, versus 5.6 per cent in the previous quarter but two-year stacked at 20 per cent, “with solid demand for consumables and everyday essentials, and largely stable general merchandise.”
“We expect lower inbound shipping and logistics costs to boost gross margin by 80 basis points year-over-year,” he added. “We expect SG&A expense rate to increase by 30 bps year-over-year due to higher store labour and operating costs. Dollarcity’s earnings contribution should remain strong at $21-million vs $11-million a year ago.”
The analyst expects the Montreal-based retailer will reiterate its full-year FY25 guidance, which includes SSSG of 3.5– 4.5 per cent (versus 12.8 per cent in fiscal 2024) and gross margin of 44.0–45.0 per cent (vs 44.5 per cent).
“But given the uncertain state of the consumer, which could potentially have an impact on discretionary/seasonal categories (Halloween and Christmas), we are moderating our FY25 SSSG estimate to 4.0 per cent from 4.4 per cent (vs 4.3 per cent consensus),” said Mr. Li. “We expect continuing strong SG&A expense control to largely offset the potential impact on gross margin. Our FY25 EPS estimate goes to $4.03 (in line with consensus) from $4.11. Aside from some temporary inefficiencies and logistics costs, we currently do not expect the rail strike to have a meaningful impact (depending on duration) since the stores are well-stocked.”
Acknowledging a limited return, Mr. Li raised his target for Dollarama shares to $140 from $133, reaffirming a “buy” recommendation. The average target on the Street is $132.73, according to LSEG data.
“Against the challenging and uncertain consumer backdrop, our positive view reflects relative outperformance in the near term given DOL’s strong earnings visibility and strong balance sheet supporting share buybacks,” he said.
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In a separate report, Mr. Li predicted shares of Alimentation Couche-Tard Inc. (ATD-T) will remain range-bound until further clarity emerges on its bid to acquire Seven & i Holdings Co. Ltd., the Japanese parent of 7-Eleven.
“We expect ATD’s results to reflect continuing macro headwinds weighing on merchandise SSSG, partly offset by solid fuel margins and good expense control,” he said. “Improvement in U.S. merch SSS starting next quarter (easier comps) is a key catalyst. The market will be focused on the 7-Eleven proposal, but we are not sure what ATD will say.”
“While we believe this transaction would be value-enhancing with attractive EPS accretion, including synergies longer-term, the market is assigning a low probability of success given the sheer size and related regulatory challenges. The possible large equity issuance is a potential overhang. In this comment, we provide our high-level thoughts on key discussion topics with investors, including the transaction multiple, regulatory challenges, funding and synergies.”
Andrew Willis: Alain Bouchard takes one more big swing to cement his Couche-Tard legacy
Ahead of its first-quarter 2025 financial report on Sept. 4, Mr. Li is now projecting earnings per share of 80 US cents, which is down 6 US cents from the same period a year ago and 4 US cents lower than the consensus forecast on the Street.
“In the U.S., we expect consumer softness to weigh on merchandise SSSG, with limited sequential improvement (0 per cent vs down 0.5 per cent in 4Q FY24 and 0.6 per cent consensus). We note that 7-Eleven’s US merchandise SSS decline accelerated to negative 4.4 per cent in July vs negative 2.0 per cent in June and negative 1.9 per cent in May. While there are structural differences that cause 7-Eleven to underperform vs Alimentation Couche-Tard (ACT), we believe trends became tougher for ACT as the quarter progressed. We expect merchandise softness to be partly offset by solid fuel margins (48 cents per gallon vs management’s long-term target of low 40cpg) and good SG&A expense control. While we expect some sequential improvement for TotalEnergies, its results continue to be impacted by macro challenges pressuring demand and fuel margins, especially in Germany.”
While he reaffirmed a positive long-term view of Couche-Tard based on its “attractive long-term growth and strong financial position,” Mr. Li kept an $85 target and “buy” recommendation after trimming his revenue expectations for both 2025 and 2026. The average target on the Street is $92.92.
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Calling 5N Plus Inc. (VNP-T) “a transformed business,” National Bank analyst Rupert Merer expressed increased confidence in its outlook for the future.
“Today, VNP looks much different from the business it was a few years ago,” he said. “It has focused its efforts and investment in a few key high growth markets, and reduced its commodity exposure by emphasizing its value-added products. The resulting improvement in margins and profitability of the business (with 45-per-cent EBITDA growth from ‘23 to ‘25) has been rewarded, but in our view, not enough. VNP’s 300 days of backlog (visibility into 2027E in some segments), and two years of forward guidance (never gave guidance previously) signal the company has found stability and growth, and minimized volatility.”
In a research note released Monday titled An irreplaceable offering: VNP is worth more, Mr. Merer emphasized the Montreal-based producer of specialty semiconductors and performance materials is poised to continue to benefit from industry tailwinds, believing its “foothold is strong, with upside from new markets.”
“VNP’s growth in the terrestrial and space solar markets has been well documented,” he said. “On the ground, VNP is a critical supplier to First Solar’s CdTe panel production, with evergreen contracts (including its most recent, with a 50-per-cent volume increase). The business should be unaffected by the upcoming elections, and VNP is diversifying with new customers like RayGen, a novel solar + storage builder that could be ramping up production (headcount is growing meaningfully). In space markets, VNP has grown the AZUR business it acquired in late ‘21, with capacity expansion and new contract wins. The backlog for this business gives some visibility out four years, and next year we believe it could do $120-million in revenue, double the 2021 run-rate and with better margins.
“With the reshoring trend gaining steam as the West aims to reduce reliance on China, VNP finds itself in a unique situation. As one of a handful of commercial suppliers to the West for products based on some critical materials (i.e. Tellurium, Germanium), VNP’s success is a matter of national security, as evidenced by the DoD’s recent $14-million grant linked to materials for satellites. In the future, the medical imaging market (CZT products) and power electronics market (i.e. EVs and data centres, powered by GaN-on-Si technology) represent areas for potential upside.”
With an increased confidence in 5N Plus’ outlook, Mr. Merer increased his target for the company’s shares to $8 from $6.50, reiterating an “outperform” recommendation. The average target is $7.31.
“While shares of VNP have moved up 10 per cent in three months, it has outperformed peers (down 3 per cent), which are trading at an average of 10x EV/EBITDA on 2026E (range of 5.7 times-14.1 times),” he said. “We believe VNP should trade at least in-line with peers, considering its has superior growth outlook and provides critical materials to strategic industries. With guidance VNP should see EBITDA growth of 45 per cent from 2023 to 2025E. The company has multiple irons on the fire for new product lines that could drive growth in late ‘26E and beyond. With that, we have increased confidence in our outlook and are raising our target,”
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After a series of “constructive” updates from management last week, Raymond James analyst Frederic Bastien thinks Black Diamond Group Ltd. (BDI-T) is “no longer in the rough,” pointing to “continued strong growth in both rental revenue and total room nights sold.”
“Capital investment at Modular Spaces Solutions is tracking 30 per cent higher than a year ago thanks to strong ongoing demand from the education sector, U.S. fiscal stimulus initiatives such as the Infrastructure Investment and Jobs Act (IIJA) and CHIPS and Science Act, and an improving Western Canadian market,” he said. “Importantly, substantially all purchases are backed by contracts in place, giving us certainty the average rental rate will rise through our forecast horizon. We also feel good about the MSS revenue mix, which is increasingly weighted toward sectors with extended contract durations such as education and construction. This is helping Black Diamond sustain healthy asset utilization even against a slightly softer backdrop for its short-term transactional business.
“WFS opportunities [are] arising from the ashes. The rotation of Workforce Solutions rental assets from pipeline projects to other end markets (at today’s higher prevailing rates) is continuing its course. Black Diamond already mobilized units to a mine site in eastern Canada and submitted proposals for small-format accommodations across North America (some of which stem from recent US infra bills). In the near-term fleet utilization will almost certainly rise on the back of the Jasper disaster relief efforts; in the long-term it could benefit greatly from Canada’s multi billion-dollar commitment to shore up continental defence and modernize NORAD.”
Mr. Bastien also touted the gains by its LodgeLink workforce booking platform, calling its momentum “undeniable.” He sees the foundation for both total room nights booked and net revenue to “grow at an accelerated rate through the remainder of 2024 and beyond.”
Maintaining his “strong buy” recommendation for the Calgary-based company’s shares, he raised his target to $14 from $12. The average is $12.17.
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Ventum Capital Markets analyst Adam Gill sees Saturn Oil and Gas Inc. (SOIL-T) “finally flexing the FCF muscle” with the launch of a normal course issuer bid.
Under the program, which was announced on Friday before the bell, the Calgary-based company will be allowed to purchase approximately 11.3 million shares, or 10 per cent of the public float.
“We see this as an important step to seeing the market recognize the Company’s FCF potential, which has been ignored given historically higher debt amortization,” said Mr. Gill. “That said, with Saturn having an FCF yield of 24.2 per cent in 2025 on conservative strip pricing of US$70/Bbl WTI, well above mid/intermediate peers at 9.4 per cent, starting a return of cash program will be a key catalyst to get the market’s attention. The other important signal to the market is that Saturn is now buying back stock after being a heavy issuer over the past 3 years. Saturn now has a meaningful and relevant production base of 39 MBoe/d, and is now in a position to buy back stock and still have cash for tuck-in acquisitions. This will hopefully put any lingering questions/concerns about more equity offerings from Saturn to rest.”
Mr. Gill emphasized a “strong focus on debt repayment and buybacks has shown to be a positive combination,” pointing to peer Athabasca Oil Corp. (ATH-T).
“Since ATH’s NCIB was announced on March 14, 2023, the stock outperformed the S&P/TSX Capped Energy Index by 56.5 per cent and our Jr./Int. Canadian E&P Index by 64.5 per cent,” he said. “Well, not all situations are similar, we believe that Saturn’s buyback and net debt improvement in the next 12 months will be a positive for the stock.”
The analyst reaffirmed his “buy” rating and $7.50 target for Saturn shares, exceeding the $5.93 average on the Street.
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In other analyst actions:
* Telsey Advisory Group’s Dana Telsey cut her Lululemon Athletica Inc. (LULU-Q) target to US$360 from US$470 with an “outperform” rating. The average on the Street is US$344.33.
* BMO’s Greg Jones raised his target for Patriot Battery Metals Inc. (PMET-T) to $10.50 from $10 with an “outperform” rating. The average is $12.88.
“The PEA provides a first look at the base case development plan and project economics for the Shaakichiuwaanaan project, a large-scale (800ktpa at full capacity), multidecade operation that would generate meaningful cash flow even in the current low price environment,” said Mr. Jones. “We see opportunity for value upside from resource growth, the addition of CV13, optimizing mine sequencing, and government projects that could reduce transport costs, none of which we currently model.”