More TargetsAs you may have guessed, I have initiated a position. GLTA
Derek Dley, an analyst at Canaccord Genuity, maintained a “hold” recommendation on Dollarama Inc. (DOL-T) but raised his target price on the stock to $85 from $82 previously after the Canadian discount retailer reported its latest impressive quarterly results on Wednesday.
The analyst’s new target reflects a valuation of 26.5-times his earnings estimate of $3.20 per share for fiscal 2024, which he considers “appropriately” valued.
“While we still believe in Dollarama’s long-term growth profile — a result of its lack of meaningful competition, industry-leading profitability and free cash flow generation, and healthy return on invested capital — we believe the shares are appropriately valued given the context of its near to medium-term earnings growth outlook,” Mr. Dley said in a note.
Dollarama reported revenue of nearly $1.3-billion during the quarterly, higher than the average estimate from analysts and up 21 per cent from the same period last year. The increase was driven partly by the net addition of 21 new stores.
Profit also beat expectations, with net earnings of 63 cents per share, compared with an average estimate of 59 cents per share from analysts.
One of the more impressive figures: Dollarama reported sales growth of 17.1 per cent at stores open for at least a year. This growth consisted of a 15.5 per cent gain in the number of transactions and a 1.4 per cent gain in the basket size of shoppers.
“All product categories demonstrated growth during quarter, with consumables continuing to have a higher exposure within the mix, albeit demonstrating signs of normalizing,” Mr. Dley said.
Chris Li, an analyst at Desjardins Securities, kept his “buy” recommendation on Dollarama and a price target of $93 on the stock, which is based on the stock trading at 25.5-times 2025 earnings.
The latest financial results, he said, reaffirm his expectation for earnings per share (EPS) growth of 14 to 15 per cent this year while the discount retailer maintains its value proposition over the competition. As well, products priced $4.25 and above enhance “the treasure hunt experience with new products,” Mr. Li said.
“We maintain our positive view and expect share price appreciation to largely track EPS growth (mid-teens percentage). The key risk is likely funds flow out of defensives,” Mr. Li said.
Irene Nattel, an analyst at RBC Dominion Securities, raised her price target on Dollarama to $101 from $98 previously, while maintaining an “outperform” recommendation on the stock, citing strong same-store sales as a key reason to stick with the retailer with a premium valuation.
The exceptionally strong same store sales, she said in a note, “reflects strong value positioning, particularly sought after in the current high inflation environment, and overall financial results reinforce management focus on productivity and efficiency.”