2023-09-07 21:49:54
CIBC says it is still concerned about Transat’s debt level and its leverage ratio. (Photo: 123RF)
What to do with Dollarama, Transat and Couche-Tard securities? Here are some recommendations from analysts likely to move prices soon. Note: the author may have a totally different opinion from that expressed by the analysts.
Dollarama (DOL, $88.57): inflation works in its favor
Inflation works in favor of Dollarama, which continues to increase its traffic thanks to its low-priced items.
The pressure that inflation has been exerting on consumers since June should allow the Quebec company to post solid same-store sales in the second quarter. BMO analyst Tamy Chen also expects management to upgrade Dollarama’s financial guidance for fiscal 2024.
Looking at the dynamics at play reported by other retailers recently, including Canadian Tire’s second quarter financial results, BMO notes that the Bank of Canada’s key interest rate hike in June hurt consumers. This should generate even more traffic for Dollarama, and the financial institution is forecasting same-store sales growth of 10.5% for the quarter and 8.7% for fiscal year 2023 (management forecast are 5% to 6%).
Another positive trend: Dollarama saw strength in the first quarter in purchases of high-margin discretionary products after several quarters of a slide into consumer goods. Management notes that when consumers are tighter on their budgets, they may decide to spend on the same items at Dollarama instead of shopping for the same, more expensive products at other retailers.
Tamy Chen notes that one of the increasingly serious problems in retail is shrinkage. Shoppers Drug Mart reports seeing high levels of theft, and Canadian Tire is also dealing with higher than normal losses. In the United States, these losses affect the material margins of companies such as Target, Dick’s Sporting Goods and Dollar Tree.
While Dollarama has reported an increase in its losses in recent quarters, the analyst believes that due to the low price level of its items, thefts should be less significant for it than for other retailers.
BMO is maintaining its outperformance forecast for Dollarama shares against its sector of activity as well as its target price of $95.
Transat AT (TRZ, $4.59): the debt still worries
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