Inside the Market’s roundup of some of today’s key analyst actions
A trio of equity analysts on the Street adjusted their ratings for Dollarama Inc. (DOL-T) following Wednesday’s release of stronger-than-anticipated second-quarter fiscal 2025 financial results and a reaffirmation of its full-year guidance, which sent its shares soaring 8.2 per cent.
Believing its “portable operating model extends [its] long-term growth outlook,” TD Cowen’s Brian Morrison moved the Montreal-based discount retailer to “buy” from “hold” previously.
Dollarama reported earnings per share of $1.02, exceeding the 97-cent projection from both the analyst at the Street while top line growth “normalizes toward its target range.” He attributed the beat the operating margin outperformance (both gross margins and expenses) as well as to Dollarcity equity pick-up growth of 99 per cent that also exceeded his forecast.
“We believe the recent pressures of inflation have been beneficial to Dollarama as consumers ‘trade down’,” he said in a research note. “We have admittedly been cautious upon how inflation easing may impact its near-term growth potential and pricing flexibility. We are gaining comfort that its target SSSG [same-store sales growth] range appears reasonable as the strength of its value proposition has in our view made it a destination rather than a short-term beneficiary.
“Our recent visit to the operations of Dollarcity have made us confident that it should return outsized growth for many years to come and in turn warrant a premium multiple. We believe its relative value gap may be wider than in Canada, that its target for new store growth is conservative, and that the business model is portable. This increases the probability of success as it expands into Mexico, that we believe can be financed by FCF generated by Dollarcity LATAM.”
Mr. Morrison raised his target price for Dollarama shares to $154 from $150. The average target on the Street is $139.36, according to LSEG data
“We view [Wednesday] morning’s release positively, with confidence improving that the Canadian operations can achieve stated targets as its outsized growth during elevated inflation normalizes, the growth outlook for Dollarcity LATAM appears exceptional, and the probability of success for Mexico increases with the model now successfully operating in five different countries,” he concluded. “This positive outlook along with the modest pullback in the share price now clear our hurdle rate for a BUY recommendation, and support our upgrade.”
Elsewhere CFRA’s Arun Sundaram raised his recommendation to “buy” from “hold” with a $155 target, up from $130. .
“[Dollarama] kept its full-year guidance unchanged, which we believe reflects some conservatism heading into the key Halloween season,” he noted.
Conversely, Wells Fargo’s Edward Kelly downgraded Dollarama to “equal weight” from “overweight,” seeing its earnings upside as “limited at best” with margin growth poised to slow and believing its valuation “appears full.” His target slipped to $130 from $136.
Analysts making target adjustments include:
* Stifel’s Martin Landry to $136 from $125 with a “hold” rating.
“These results reassured investors, which were concerned about a bigger deceleration in earnings, given recent results from Canadian peers and from the U.S. dollar stores,” said Mr. Landry. “Hence, the shares gained back the ground lost in the last week and were up 8 per cent on the day. Dollarcity continues to perform very well, with Q2FY25 earnings up 81 per cent year-over-year, the fastest growth rate of the last three quarters. On the back of these results, we have increased our forecasts and our target price ... Despite the recent operational performance, shares appear fairly valued, trading at 29.5 times forward earnings, 6 multiple points higher than the 10-year average.”
* National Bank’s Vishal Shreedhar to $143 from $141 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. We also believe international growth will become increasingly important, likely aided by acquisitions,” said Mr. Shreedhar.
* Desjardins Securities’ Chris Li to $143 from $140 with a “buy” rating.
“Results reflect continuing SSSG normalization supported by solid margin and SG&A control, with DOL on track to achieve attractive 13‒14-per-cent annual EPS growth in the next two years,” said Mr. Li. “While the premium valuation increases share price volatility, our positive view reflects relative outperformance given DOL’s strong earnings visibility against a challenging consumer backdrop. Our target is now $143 (was $140), driven by increased confidence in Dollarcity’s long-term growth and FCF conversion potential.”
* Canaccord Genuity’s Luke Hannan to $138 from $125 with a “hold” rating.
“Overall, we came away from the quarter incrementally more positive on both the near- and long-term outlook for Dollarama,” said Mr. Hannan. “In the near term, we expect Dollarama’s value proposition to continue resonating among Canadians amidst a softening labour market and budgetary pressures from heightened inflation. For Q3/F25, management expects transitory top-line pressure from two key Halloween selling dates shifting into Q4/F25. Given management’s track-record of conservative guidance, we remain optimistic on Dollarama’s ability to deliver healthy gross margins from freight tailwinds and revenue scaling. In addition, we believe Dollarcity’s solid execution in LATAM leaves it well-positioned to succeed for its entrance into Mexico, which may shape up to be a sizable market given its 130 million population.”
* RBC’s Irene Nattel to $147 from $144 with an “outperform” rating.
“Q2 results reinforce our view that Dollarama is the best positioned of any Canadian retailer for the current consumer spending backdrop, and the growth outlook is supportive of its premium valuation. In our view, the stock remains highly attractive with excellent visibility and sustainability of the growth runway, further Dollarcity optionality including planned expansion into Mexico starting 2026, and perennial return of capital to shareholders through both dividend growth and share buybacks,” she said.
* BMO’s Tamy Chen to $147 from $138 with an “outperform” rating.
“The stock’s trade-off into earnings reflected caution that SSS may be lower than expected,” she said. “FQ2/25 was better than feared and commentary about H2 was largely in line.
“The primary push back from investors has been valuation at 19.5 times our F2026E EBITDA vs. historical 15-18 times. It would not surprise us if the stock is largely range-bound until we lap year-ago comps. The medium-term story remains intact and DOL may eventually evolve into a global dollar store roll-up story.”
* CIBC’s Mark Petrie to $138 from $128 with a “neutral” rating.
“Dollarama delivered strong and impressively balanced Q2 results, with all KPIs better than forecast. Though same-store sales (SSS) growth is reverting back to more normalized levels, DOL is delivering solid margin leverage. Dollarcity’s growth remains excellent, and the outlook is robust. Our estimates tick up modestly and sit at the top end of guidance,” said Mr. Petrie.
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While he warned “there was little indication of near-term demand improvements,” RBC Capital Markets analyst Logan Reich said he came away from a recent investor meeting with Restaurant Brands International Inc.’s (QSR-N, QSR-T) chief executive officer Joshua Kobza “more confidence in the longer-term potential of the business.”
Mr. Reich pointed to three takeaways from the session.
1. Multiple levers to achieve 8-per-cent plus adjusted operating income growth in 2025 “even if top-line remains pressured.”
Analyst: “We think the company’s ability to maintain profitability despite softer macro while still investing for future growth will be received positively by investors. If and when the operating environment improves, we believe the company could be set up for solid AOI acceleration.”
2. The Burger King $5 value meal could be extended in the United States.
Analyst: “The traffic uplift has been welcomed by franchisees where the company views it as a win-win-win for customers, franchisees and QSR. Further, given there’s not a meaningful margin degradation, it sounded like the company has the appetite to consider extending the promotion beyond October. Given the macro volatility, we view this optionality as attractive where there’s additional ability to support traffic in light of a challenging macro. Further and importantly, unit growth is typically driven by unit economics (4 wall EBITDA) where we don’t view the push to value as a headwind to unit expansion.”
3. “Meaningful” M&A is unlikely for the foreseeable future.
Analyst: “Capital allocation priorities in order: reinvesting for growth, growing the dividend, reducing leverage, periodic buybacks. Given the lack of a pizza business, investors gauged management’s interest in making an acquisition. Management was firm in saying they’re focused on improving the current portfolio of brands. We think an acquisition in the pizza space at some point could make sense, but given the existing priorities of the business (BK US remodels, recent Carrol’s & PLK China acquisitions, TH China investment, etc.), we think it makes sense to focus on the existing brands for now. On capital allocation, reinvesting in the business to drive growth is the company’s top priority followed by growing the dividend with a 50-60-per-cent target payout ratio (TTM [trailing 12 months] is 56 per cent) then reducing leverage ratio. Our takeaway on buybacks is that they’re not likely to be a consistent aspect of shareholder return.”
Citing “higher confidence in earnings support,” Mr. Reich raised his target for Restaurant Brands shares to US$95 from US$90, reiterating an “outperform” recommendation. The average on the Street is US$84.55.
“We continue to view QSR as our top idea among the global franchised fast food group,” he said. “We see potentially improving Burger King U.S. trends, accelerating development, and shifts in capital allocation (toward growth investments and reduction in leverage) driving stock performance. Relative valuation for QSR remains compelling (approximately 15 times 2025 estimated EBITDA, versus global peer average of 17 times), in our view, particularly as we are taking a more cautious stance on the overall group.”
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Following the release of “outstanding” third-quarter results, Ventum Capital Markets analyst Amr Ezzat sees Blackline Safety Corp. (BLN-T) “flexing its muscle,” reiterating a “highly positive” outlook for the Calgary-based company given its “strengthening profitability and accelerating momentum.”
“Born from a relentless commitment to innovation, Blackline has emerged as the undisputed industry leader in true connected safety solutions,” he said. “Since F2014, Blackline has reinvested almost 26 per cent of its sales into product development resulting in a differentiated product line and a three- to five-year technological lead over competitors. Yet, despite its clear market leadership, investors often pigeonhole this trailblazer as merely a hardware provider to the Canadian energy sector. This narrow view overlooks a much richer narrative. Over the years, Blackline has diversified both its revenue streams and its global reach, with 75 per cent of business now outside Canada and only 40 per cent tied to oil and gas — a far cry from the Company’s beginnings. At the core of Blackline’s strategy is its unique business model that fully integrates high-margin service revenues with each hardware sale and has led to a 45 per cent/38 per cent sales/ARR CAGR [annual recurring revenue compound annual growth rate] over the last five years. In fact, Blackline has cemented its position as one of the fastest-growing Canadian tech companies over the past several years.
“As Blackline continues to scale, this model is set to unlock substantial margin expansion, with GM% [gross margin percentage] expected to rise to 62 per cent by F2028 from 56.7 per cent (trailing 12 months), fuelling aggressive earnings growth. We foresee Blackline evolving from a breakeven EBITDA business to a 15-per-cent EBITDA margin business by F2028, with further expansion expected in our longer-term projections.”
Before the bell on Wednesday, Blackline reported an “unexpected” positive Adjusted EBITDA of $0.8-million for the quarter, “significantly” ahead of both the Street’s forecast of a loss of $0.8-million and Mr. Ezzat’s projection of a loss of $1.4-million. The analyst called it “a substantial turnaround” from a loss of $2-million in the second quarter and negative $3.8-million during the same period a year ago.
“The earlier-than-anticipated profitability sets a strong foundation heading into the seasonally stronger Q4, positioning Blackline for continued momentum,” said Mr. Ezzat. “Revenue grew 35.7 per cent year-over-year to $33.7-million (versus Street expectations of $31.9-million), driven by robust hardware sales and a notable 34.1-per-cent year-over-year growth in recurring service revenues, with consolidated gross margins expanding to 59.0 per cent. With Annual Recurring Revenue (ARR) reaching a record $62.1-million (32.1 per cent year-over-year) and a strong Net Dollar Retention (NDR) rate of 128 per cent, Blackline is effectively scaling its high-margin, high-visibility service business while maintaining strong retention and upsell performance.”
After raising his revenue and earnings expectations through fiscal 2026, Mr. Ezzat bumped his target for Blackline shares to $7 from $6.50, keeping a “buy” recommendation. The average target is $6.94.
“We expect the Company to grow its sales nearly twofold by F2026 and post an EBITDA positive F2025; as such, we believe using multiples on short-term estimates significantly (and incorrectly) undervalues BLN shares as they give no recognition to the Company’s explosive growth profile,” he said.
Elsewhere, Canaccord Genuity’s Doug Taylor upgraded Blackline to “buy” from “speculative buy” with a $7 target, up from $5.50.
“The increased target comes as we roll forward our model after better-than-anticipated Q3 results which demonstrate the company continuing to aggressively take share in the connected safety market,” said Mr. Taylor. “Given the highly anticipated pivot to positive EBITDA with a view to positive cash flow next year, we believe the risk profile of the company has improved. In recognition of this, we are dropping the “speculative” qualifier and reducing our discount rate, resulting in a higher target price. We see further upside as the company grows into its ‘rule-of-40′ aspirations with a profitability profile which should broaden its investor appeal.”
Analysts making target changes include:
* ATB Capital Markets’ Martin Toner to $7.50 from $6 with an “outperform” rating.
“We think the highlight of the quarter was BLN reaching positive adj. EBITDA, ahead of the Company’s target of reaching positive adj. EBITDA by 2024 end,” said Mr. Toner. “As we look towards the seasonally stronger Q4, the Company has significant gross profit growth potential that can push margins higher. We believe the Company can continue to grow with some operating expense reinvestment, and we now expect higher margins over time.”
* National Bank’s John Shao to $6.50 from $6 with an “outperform” rating.
“Blackline Safety’s FQ3 results were in line with our quarterly preview where we called out scaling executions and favorable seasonality to drive strong performance,” said Mr. Shao. “Additionally, FQ3 saw a pleasant surprise with a positive adj. EBITDA, one quarter ahead of the previous schedule. If anything, we believe those results meaningfully materialized what used to be theoretical gross margin levels and operating leverage potential, and conveniently positioned BLN on a track of scaling profitability as it continues to grow its top line. With strong demands for its existing products across multiple regions and the future uplift from new products, Blackline is on an uninterrupted path to becoming a rule 40 company.”
* TD’s David Kwan to $7.50 from $6 with a “buy” rating.
“Despite the stock being at a multi-year high, it is still trading at half the peer group average valuation and near the bottom end of its historical range. We believe the shares should continue to re-rate, as we expect BLN to continue generating organic growth well above its peers, with improving margins and balance sheet,” he said.
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National Bank Financial analyst Cameron Doerksen sees volumes “tracking a little lower, but networks recovering well” following the recent labor disruption endured by Canada’s railway companies.
“So far in Q3, CN’s volumes as measured by RTMs [revenue ton miles] are up 2.5 per cent year-over-year while CPKC’s are up 5.7 per cent,” he said. “Both railroads are enjoying volume growth in their respective intermodal segments helped by an easy comparison to Q3 last year due to the Canadian West Coast port strike last year (partially offset by the rail labor stoppage this year). Petroleum-related volumes are also seeing solid year-over-year tailwinds for both railroads. Grain volumes are also positive, but a hot end to the growing season in Western Canada has tempered expectations for this year’s harvest, although a larger crop than last year is still expected.”
In a research report released Thursday previewing third-quarter financial results, Mr. Doerksen lowered his forecast for both Canadian National Railway Co. (CNR-T) and Canadian Pacific Kansas City Ltd. (CP-T) to reflect the impact of the disruption, which he emphasized wasn’t lengthy but “the impact on operations at both railroads includes the orderly wind-down of operations ahead of a potential strike/lockout and the 1-2 weeks it has taken to fully recover operations.”
“Operations at both CN and CPKC are recovering quickly from the short-lived work stoppage in late August with most key operating metrics now back to pre-stoppage levels or better in some cases,” he said. “There has nevertheless been some modest impact on volumes with a full recovery likely only in early Q4 (with some international intermodal volumes likely to take longer to fully rebound). There is also a financial impact from the strike, with CN notably lowering its full-year 2024 guidance. We have therefore made estimate adjustments to account for the labor disruption. CPKC management had previously indicated that it would still be comfortable with its full-year 2024 guidance for double-digit EPS growth even in the event of a short work stoppage, so we do not expect any change in guidance with the Q3 report. CN’s prior guidance was for mid-to-high single digit EPS growth in 2024, but it did not incorporate a potential labor disruption, so management has lowered its guidance to low-single-digit EPS growth (we have decreased our forecast and now assume EPS growth of 3.1 per cent for the full year versus 6.7-per-cent year-over-year growth forecasted previously).”
“So far in Q3, Canadian rail volumes are mixed (but positive for both CN and CPKC despite the impact of a work stoppage), and while there is financial impact from the labor disruptions (with CN lowering its 2024 guidance), we believe that with the lifting of uncertainty around a labor stoppage, the stage may be set for better share price performances from both CN and CPKC in the coming quarters. We keep our Outperform rating on CN Rail as its relative valuation remains attractive, in our view. We remain positive on CPKC’s long-term volume growth outlook, but valuation is less compelling, and we therefore keep our Sector Perform rating on the stock.”
With the changes, Mr. Doerksen cut his target for CN shares to $181 from $186, maintaining an “outperform” rating.
“While Q3 results are impacted by the labor disruption as well as wildfires, we believe the market will look beyond short-term results,” he said. “Over the mid-to-longer term, CN should see volume growth from petrochemicals and international intermodal, as well as from what we expect could be a more constructive freight demand environment in 2025 (CN more tied to the North American consumer-related volumes, which could be helped by interest rate cuts). Valuation is the primary reason for our Outperform rating with CN shares currently trading at 21.0 times our 2024 EPS forecast versus its historical forward average of 22.2 times. CN is also trading close to in-line with the U.S. peer group average versus the 2.4 turn premium the stock has historically enjoyed.”
For CP, the analyst’s target slid to $117 from $119 with a “sector perform” recommendation (unchanged).
“We continue to view CPKC as having the most compelling long-term growth prospects of all the North American railroads as it will see benefits from merger synergies (original target of $700-million in run-rate merger revenue synergies at 2024 year-end likely to be closer to $800-million) as well as near-shoring of manufacturing to Mexico,” he said. “As such, a premium valuation for CPKC is justified, but we continue to believe that much of the expected growth over the next two years is reflected in the valuation. We therefore keep our Sector Perform rating.”
Elsewhere, ATB Capital Markets’ Chris Murray cut his CN target to $167 from $177 with a “sector perform” rating.
“The announcement did not come as a significant surprise as CN’s guidance for 2024 had assumed no work stoppage and, as noted with Q2/24 results, the longer-term growth target looked optimistic given a challenging H1/24, ongoing labour cost pressure, and uncertainty surrounding international intermodal volumes,” said Mr. Murray. “Management confirmed that operations have been fully restored following the work stoppage and remained constructive on the grain harvest, which should support volume trends in H2/24 and into 2025.”
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Calling it “an impressive growth story,” Raymond James analyst Daryl Swetlishoff initiated coverage of Atlas Engineered Products Ltd. (AEP-X) with a “strong buy” rating, seeing its five-year revenue and ROTC CAGR [return on total capital compound annual growth rate] of 34 per cent and 60 per cent, respectively, “backstopped” by more than 300-per-cent share price returns.
“We regard Atlas as well positioned to capitalize on improving Canadian housing fundamentals with revenue 92 per cent correlated with housing starts,” he said. “We also have conviction the combination of taking truss and wall panel market share, supported by attractive M&A and organic growth opportunities will support revenue and margin growth (along with multiple expansion) over time. While not included in our estimates, aggregating the impacts of potential M&A and fully realizing on the automation strategy has potential to bring theoretical equity value north of $4.50 pr share. With a pristine balance sheet, growing FCF (supported by its maintenance capex-light model) and a valuation near the low point of its historic range, we regard Atlas as an emerging serial compounder and encourage investors to add to positions.”
Calling it the “consolidator of choice in highly fragmented truss space” with “strong” leverage to improving Canadian housing fundamentals as well as referring to it as “a well-oiled, scalable M&A machine,” Mr. Swetlishoff set a $2.25 target for the Nanaimo, B.C.-based company’s shares, seeing an “attractive” valuation and “favourable risk/reward scenario.” The average on the Street is currently $2.39.
“Atlas shares are currently trading at 10.0 times and 4.9 times our 2024 and 2025 EV/EBITDA estimates (respectively) which represents a significant discount compared to the 2025 peer group average of 8.8 times and its historical trading range of 4 times to 10 times,” he said. “Given the strong organic and M&A growth prospects, we believe the current valuation presents a favorable risk-reward scenario. We highlight the 270 basis points increase in gross margins from 2018 to 2023, despite volatile market conditions. During this period, AEP has also quadrupled its revenue at a remarkable 34-per-cent CAGR. Since going public in June 2017, AEP shares have returned over 300 per cent, outperforming the TSX Composite (49 per cent), TSX Venture (down 32 per cent), and S&P 500 (up 124 per cent).”
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In other analyst actions:
* After changing his primary valuation method for EQB Inc. (EQB-T) to forward price-to-earnings (P/E) from price-to-book (P/B), Raymond James’ Stephen Boland increased his target for its shares to $112 from $106 with an “outperform” recommendation (unchanged). The average on the Street is $106.78.
“We will be comparing EQB more directly to the Big 6 Banks despite some differences in operations and market capitalization,” he said. “However, the main valuation metric used in valuing the Big 6 is P/E and not P/B. This may have changed with the material growth of the asset management and capital markets operations, which does not accurately get captured in P/B in our opinion. Recently, EQB changed its year-end to match the Big 6 so fiscal year comparisons are more appropriate.
“We have analyzed over 10 years of data regarding the Big 6 performance, including growth, ROE and provisioning for credit losses among others. For the most part, EQB has reported higher growth, a higher ROE and lower provisions on a consistent basis. We believe EQB should trade at a discount to the Big 6 P/E average due to a lower market capitalization and liquidity. However, the current discount appears too wide in our opinion. As a reminder, EQB is targeting EPS growth of 15 per cent and a ROE greater than 15 per cent, which it consistently delivers.”
* BMO’s Stephen MacLeod increased his CCL Industries Inc. (CCL.B-T) target to $90 from $84 with an “outperform” rating. The average is $86.90.
“Our takeaways from Labelexpo Americas 2024 were positive – CCL remains well positioned and is one of the only players in the industry that has the financial wherewithal to take advantage of and benefit from many trends in the label industry, from consolidation to shifting & emerging technologies,” he said. “We believe CCL is a best-inclass company within the North American packaging group, with top quartile return metrics, leverage, margins, deserving of a premium valuation. We continue to believe CCL will be a multi-year compounder of value.”
* Needham’s Ryan MacDonald raised his Docebo Inc. (DCBO-Q, DCBO-T) target to US$50 from US$45, below the US$53.13 average, with a “buy” rating.
* Raymond James’ Steven Li cut his Evertz Technologies Ltd. (ET-T) target to $16 from $17.50 with an “outperform” rating, while BMO’s Thanos Moschopoulos lowered his target to $15 from $17 with an “outperform” rating. The average is $15.42.
“Similar to 4Q, 1Q came in below expectations (on project timing) even as backlog continues to expand sequentially (up 3.4 per cent quarter-over-quarter),” said Mr. Li. “We are lowering our model and target as a result. Evertz Software & Services segment continues to grow (up 26 per cent year-over-yeare) although we do expect some ebb and flow in any given quarter depending on project milestones being met. Software & Services, on a TTM [trailing 12-month] basis, represented 40 per cent of total revenue.”
* JP Morgan’s Arun Jayaram cut his Vermilion Energy Inc. (VET-T) target to $15 from $18 with an “overweight” rating. The average is $20.73.