Inside the Market’s roundup of some of today’s key analyst actions
National Bank Financial analyst Vishal Shreedhar upgraded his recommendation for shares of Dollarama Inc. (DOL-T) in response to deal to buy Australian retailer The Reject Shop Ltd., citing “improved clarity on [its] growth vectors (including greater international potential) and an uncertain macroeconomic backdrop that favours value retailers with a steady track record of growth.”
Shares of the Montreal-based company finished 1.4 per cent on higher on Thursday following the overnight announcement of the acquisition, which sees it is offering A$6.68 per share in cash for Australia’s largest discount retailer in a transaction that values The Reject Shop at A$259-million ($233-million).
“We expect minimal immediate impact to DOL’s near-term EPS and a limited impact on its pro forma net debt to EBITDA ratio upon closing,” said Mr. Shreedhar. “We are supportive of this transaction; while small, this deal aligns with our prior view on DOL exploring global acquisitions as a growth vector.
“While some debate about whether DOL’s valuation multiple has gotten ahead of itself, we ask how investors would value a stable, long-dated high-growth, high return on capital international growth story. There are precedents suggesting that valuation may not have peaked, though execution and the macro backdrop are key. The acquisition is not expected to impact DOL’s balanced capital allocation approach.”
With The Reject Shop’s EBITDA margin over the last 12 month at 14.7 per cent versus Dollarama’s 30.9 per cent, excluding contributions from Dollarcity), Mr. Shreedhar thinks improvement will come from leveraging the Canadian company’s sourcing/buying capabilities, IT infrastructure and logistics.
“The transition of TRS’s platforms into DOL could take less than 4 years for the existing store base, and logistics integration could take less than 3 years,” he added. “TRS’s tepid brand recognition is an opportunity (improve consumer perception and regularity of shop).”
Also seeing opportunities to grow its store network in Australia, Mr. Shreedhar moved Dollarama to an “outperform” rating from “sector perform” previously with a $166 target, rising from $156. The average target on the Street is $149.77, according to LSEG data.
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While cautioning Lululemon Athletica Inc. (LULU-Q) continues to display “lacklustre” U.S. growth trends, Citi analyst Paul Lejuez thinks its guidance for the current fiscal year appears achievable.
Shares of the Vancouver-based athleticwear company plummeted in premarket trading on Friday after the release of guidance that fell short of the Street’s expectations, including earnings per share of US$14.95-US$15.15 (versus the consensus projection of US$15.46). That came alongside fourth-quarter 2025 results that exceeded forecasts (EPS of US$6.14 versus consensus of $5.87).
“4Q EPS beat cons on stronger int’l sales/GM [gross margins],” said Mr. Lejuez. “While Americas comps of flat was in-line w/cons, it was slightly weaker than market expectations and implies U.S. comps down 1 per cent in 4Q. The U.S. comp inflection is no longer expected to happen in 1Q, with management planning U.S. comps consistent with 4Q, calling out challenging macro headwinds in the U.S .overshadowing good customer response to newness. F25 guidance calls for only slight overall U.S. growth (implying negative comps), which marks the 2nd yr in a row of choppy U.S. trends and highlights the category/competitive pressures facing LULU.
“While we view F25 EPS guidance as achievable (with some upside likely), shares are trading (pre-market) at an F25E P/E multiple of 20 times, which we believe is fair until they can show the U.S. biz can comp again. With earnings downside limited near-term, we see a balanced risk/reward at current (pre-market) levels.”
Despite the initial negative respond to the late Thursday release, Mr. Lejuez kept a “neutral” rating and US$330 target for Lululemon shares. The average target is US$398.85.
“After years of benefitting from outsized growth in active apparel, trends in the category have slowed in F24 with data in Yoga & Active apparel pointing to a further decel 2Q QTD vs 1Q (which was a big decel vs F23),” he said. “This dynamic, coupled with LULU’s execution issues (lacklustre product assortment/lack of color/sizing) leave LULU more susceptible to increased competition and promotional pressures in 2H24/F25. We believe category weakness and a tougher macro backdrop makes it unlikely LULU sees a reacceleration in US trends in 2H. Additionally, while LULU has performed extremely well in China over several years, incremental weakening of the China consumer environment is an added risk to the stock (as expectations remain high on China growth).”
Elsewhere, Raymond James’ Rick Patel downgraded Lululemon to “market perform” from “outperform” with a US$430 target.
“Despite favorable initial reads from recent product launches (improvement in conversion, average order value, units per transaction), the U.S. remains challenged and is only planned to grow modestly in FY25,” he said. “We expected more robust U.S. growth and a return to positive comps in FY25 after last year’s product missteps, but we no longer have high confidence on this outcome.”
Analysts making target adjustments include:
* BTIG’s Janine Stichter to US$420 from US$470 with a “buy” rating.
“While Q4 beat the already upwardly revised guidance, the focus is on the outlook, which came in light both for Q1 and ‘25,” she said..”Though the consumer is responding favorably to newness in the assortment (translating to better UPT and average transaction size), LULU has not been immune to the broader traffic slowdown to start the year. As such, guidance embeds only LSD-MSD% growth in the Americas, with the US at the lower end of this range, similar to recent performance. Given the acceleration in product newness and assortment improvements that arenow in place, this is likely to be viewed as disappointing and further fuel the bull/bear debate around competition. We view guidance as potentially conservative, as it assumes trends similar to Q1′s softer start, and also embeds some SG&A build back (whereas there is likely some flexibility here). While macro uncertainty is obscuring execution improvements, we note LULU’s outlook is still solid when compared to the broader group and believe visibility is better than peers, given the company specific execution opportunities.”
* Stifel’s Jim Duffy to US$424 from US$438 with a “buy” rating.
“The outlook embeds a cautious consumer in the U.S. impacting traffic industry wide,” he said. “New product introductions including the Glow Up, Daydrift, and BeCalm are reportedly resonating with guests following product missteps in 2024. Shares trade at 20 times the high-end of the FY25E EPS guidance range; relative to apparel comps we appreciate the relative conservatism in guidance, track record for outperformance, and tangible near-term drivers.”
* BofA Securities’ Lorraine Hutchinson to US$400 from US$480 with a “buy” rating.
* Truist Securities’ Joseph Civello to US$380 from US$460 with a “buy” rating.
* BMO’s Simeon Siegel to US$302 from US$313 with a “market perform” rating.
* Wells Fargo’s Ike Boruchow to US$315 from US$375 with an “equal-weight” rating.
* JP Morgan’s Matthew Boss to US$391 from US$437 with an “overweight” rating.
* Piper Sandler’s Anna Andreeva to US$315 from US$340 with a “neutral” rating.
* Keybanc’s Ashley Owens to US$400 from US$420 with an “overweight” rating.
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Expecting its shares to “remain range-bound pending materially improved fundamentals,” RBC Dominion Securities analyst Paul Treiber downgraded Enghouse Systems Ltd. (ENGH-T) to “sector perform” from “outperform” previously.
In a report released Friday, Mr. Treiber pointed to three factors in explaining his changing view of the Markham, Ont.-based software company:
* An increasing availability of software consolidator stocks in Canada.
Analyst: “We now cover 8 software consolidators. Among these stocks, Enghouse ranks in the bottom quartile for expected adj. EPS growth, FCF/sh growth and organic growth over the next 12 months. For capital deployed on acquisitions as a percentage of FCF, our forecast implies Enghouse ranks in the middle quartile; however, Enghouse’s TTM [trailing 12-month] capital deployed on acquisitions ranks in the second lowest quartile among these stocks.”
* The likelihood that Enghouse’s valuation will remain below peers and its historical average.
Analyst: “Enghouse is trading 57 per cent below peers and 42 per cent below its 10- year average, as Enghouse’s capital deployed on acquisitions has been below expectations and organic growth has been negative. In light of Enghouse’s gap to peers on expected adj. EPS, FCF/sh, organic growth, and capital deployed on acquisitions, we believe that Enghouse’s shares are likely to continue to trade towards the low-end of its historical range and below peers.”
* Fundamentals may remain below expectations for longer than expected.
Analyst: “While our financial forecasts call for Enghouse’s capital deployed on acquisitions to increase from $50-million TTM [trailing 12 months] to $120-milion FY26 and organic growth to stabilize at negative 3.0 per cent in FY26, near Enghouse’s 10-year historical average (negative 3.6 per cent), our expectations have been pushed out in the past. Over the last 3 years, Enghouse’s actual capital deployed on acquisitions has averaged only 33 per cent of our 18-month forward estimates, while actual organic growth has missed our 18-month forward estimates by 560 bps.”
Mr. Treiber also reduced his target for Enghouse shares to $33 from $38. The average target on the Street is $31.67.
“In light of Enghouse’s current valuation below peers and at the trough of its historical range, the current dividend (4.4-per-cent yield), and low investor expectations for near-term growth, we believe downside for the shares is limited. However, pending materially increased capital deployed on acquisitions, we believe the shares are likely to remain range-bound. As a result, we anticipate the share price appreciation of other software consolidators in our coverage will exceed the shares of Enghouse over the next 12 months,” he concluded.”
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Alongside his downgrade of Enghouse, Mr. Treiber initiated coverage of two other Canadian software consolidators, both of which were spun out from Constellation Software Inc. (CSU-T).
* Emphasizing the size of its portfolio for Constellation, he gave Lumine Group Inc. (LMN-X) an “outperform” rating an $50 target. The average is $47.
“Lumine has a proven business model, acquiring and managing vertical market software (VMS) companies,” he said. “Due to Lumine’s relatively small size and focus on large acquisitions, we believe that Lumine will experience rapid growth through acquisitions over the next several years. We believe Lumine’s valuation is attractive, given expected value creation through compounding of capital as Lumine re-deploys excess FCF into accretive acquisitions.”
“Since Lumine was effectively founded in 2014, the company has created significant shareholder value. Revenue has expanded from zero to $668-million last year, with a 62-per-cent CAGR [compound annual growth rate] between FY22 and FY24, through acquisitions funded primarily through FCF. Lumine has averaged 31-per-cent adj. EBITDA margins and 35-per-cent ROIC over the last 3 years, which affirms the company is deploying capital at least in the high teens/ low 20-per-cent range, above most other consolidators in our coverage. ...We believe Lumine will compound capital at a high rates of return, given insider ownership (Constellation, directors and key managers hold 68 per cent of shares) and shareholder-aligned performance incentives. Lumine, at just 1.1 per cent of its addressable market, has a long runway for growth.”
* In a report titled A European twist on Constellation, he started Topicus.com Inc. (TOI-X) with an “outperform” rating and $170 target. The average is $156.
Analyst: “Topicus.com has a proven business model, acquiring and managing vertical market software (VMS) companies. Larger acquisitions will help accelerate growth over the next several years, in our view. Topicus.com’s valuation is attractive, given expected value creation through compounding of capital as Topicus.com re-deploys excess FCF into accretive acquisitions.”
“Since Constellation acquired predecessor TSS in 2013, Topicus.com has created significant shareholder value. Over that time, revenues have increased at a 22-per-cent CAGR and adj. EBITDA has grown at a estimated 26-per-cent CAGR, primarily through acquisitions funded through re-deploying FCF. Over the last three years, Topicus.com has averaged 28.1-per-cent adj. EBITDA margins and 20.3-per-cent ROIC, which affirms the company is deploying capital at least in the high teens/low 20-per-cent range, above most other consolidators in our coverage. ... With operations in Europe, Topicus.com is focused on niche VMS, which has an attractive market structure. We estimate Topicus.com’s addressable M&A opportunity is €67B, which provides a large long-term runway to deploy capital. While growth is primarily through acquisitions, the company’s organic growth (4.5-per-cent TTM) is healthy and slightly exceeds Constellation’s.”
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With macroeconomic conditions and tariff uncertainty affecting consumer confidence, TD Cowen analyst Michael Van Aelst expect a slowing in Saputo Inc.’s (SAP-T) profit recovery.
He’s now projecting an EBITDA decline of 1 per cent for the Montreal-based company’s fourth quarter of its fiscal 2025, down from 6-per-cent growth previously. He also reduced his full-year 2026 and 2027 EBITDA estimates by 4 per cent and 3 per cent, respectively, believing the “potential for layoffs and uncertainty around tariffs should lead to some additional belt tightening by an already challenged consumer.”
“U.S. market factors should be a large negative hit to Q4 EBITDA,” said Mr. Van Aelst. “Despite averaging higher y/y, the U.S. commodity cheese price fell 14 per cent over the past four weeks, which leads to unfavourable realization of inventories. The milk-cheese spread is also trending well below year-ago levels (averaging -US$0.23/lb in Jan/Feb vs. -US$0.13/lb). We now expect 5-per-cent USA EBITDA growth (vs.15 per cent previously) led by returns on GSP capex (adds $26-million in the quarter and $100-million for F25). In Canada, we see 15-per-cent EBITDA growth leading to record Q4 profits for the seasonally weaker quarter, driven by operational efficiencies, lower G&A, mix and higher volume.”
“With the recent drop in the U.S. cheese price and the weak U.S. market factors seen in Q4-to-date, we are now calling for EBITDA of $377-million (down from $400-million previously) vs. $379-million last year, 6 per cent below consensus of $400-million (range: $377-million-$429-million).”
Maintaining his “buy” rating for Saputo shares, Mr. Van Aelst lowered his Street-high target to $35 from $37. The average is $30.63.
“Valuation sits at 7.6 times our NTM [next 12-month] EBITDA estimate, a 15-year low and well below 3-/5-/10-year averages of 9.4 times/10.1 times/11.5 times, despite our belief that EBITDA can grow 16 per cent/12 per cent in F26/F27 and FCF yield reach 10 per cent/13 per cent,” he said. “Recent challenges have not been operational; they are either non-recurring or tied to transient dairy commodity market or macroeconomic pressure. Global Strategic Plan (optimization and capacity expansion initiatives) returns and brand strengthening initiatives are increasingly contributing and should ramp up meaningfully over the next four quarters. Dairy market factors tend to normalize over time and should get a boost from a change in the milk pricing formula by mid-C2025.”
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In other analyst actions:
* JP Morgan’s Jeremy Tonet initiated coverage of South Bow Corp. (SOBO-N, SOBO-T) with a “neutral” rating and US$28 target. The average on the Street is US$24.67.
* ATB Capital Markets’ Martin Toner cut his Bitfarms Ltd. (BITF-T) target to $3.75 from $6.50, keeping an “outperform” rating. The average is $6.50.
“We are constructive on BITF’s HPC/AI vision, though we believe a customer contract could be 12 months plus and BITF will likely need to raise more capital to fund its infrastructure build-out in the interim,” said Mr. Toner. “We are also encouraged that BITF at its current EH/s levels will be able to mine profitably in 2025, taking pressure off the balance sheet. We lowered our EH/s growth assumptions given the focus on HPC/AI, while factoring in the share dilution following the Stronghold deal close.”
* Desjardins Securities’ Gary Ho raised his Dominion Lending Centres Inc. (DLCG-T) target to $9.25 from $9 with a “buy” rating. The average is $9.50.
“4Q results (pre-released) were solid, in our view. While we foresee some near-term housing activity softness, refi activity, reflagging of new brokers, launch of a new ad campaign and Gold Rush success should all support management’s $100-billion FMV target in three years. Its Heartwood lender JV offers significant upside, leveraging DLC’s powerful distribution network without DLC taking on credit risk. We raised our 2026 estimates along with our target price,” he said.
* Scotia Capital’s Orest Wowkodaw trimmed his Hudbay Minerals Inc. (HBM-T) to $13.50 from $14 with a “sector outperform” rating. The average is $14.82.
“HBM released relatively mixed updated three-year operating guidance (with no changes to 2025). The company also announced an accretive transaction to fully consolidate its ownership in the Copper Mountain mine in BC to 100 per cent (from 75 per cent),” said Mr. Wowkodaw.
Overall, we view the update as mixed for the shares. Although Copper Mountain has been an underperforming asset to date, we think an ownership consolidation makes financial and strategic sense under these attractive terms, particularly on a long-term view. However, we have further trimmed our near-term estimates and NAVPS for the company.”
* Stifel’s Suthan Sukumar cut his Lightspeed Commerce Inc. (LSPD-N, LSPD-T) target to US$12 from US$15 with a “hold” rating. The average is US$15.68.
“We attended Lightspeed’s capital markets day yesterday which offered a deep-dive on the company’s new corporate strategy, product/tech, and financial outlook,” he said. “Our primary takeaway was Lightspeed’s focus on innovation was more elevated than expected, as per $50-million in incremental product/tech investment anticipated next-year, which we view positively and suggests that the company is building off of early up/cross-sell proof points with newer flagship platforms to further competitive advantage and penetration of a refined $80-billion TAM in NA retail and EMEA hospitality. GTM execution appears to be off to a strong start with an aggressive sales ramp, but still is in the early innings, and a muted financial outlook with persisting macro-related softness into F26 tempers our expectations around near-term progress against 3-year-targets, as reflected with our HOLD rating. We revise our estimates lower, which drives our target lower.”
* CIBC’s Robert Catellier raised his Tidewater Renewables Ltd. (LCFS-T) target to $3.25 from $3, maintaining a “neutral” rating. Other changes include: Acumen Capital’s Trevor Reynolds to $3.50 from $2.25 with a “hold” rating and ATB Capital Markets’ Nate Heywood to $4 from $3 with a “speculative buy” rating. The average is $3.95.
“LCFS Q4/24 results were mixed relative to our expectations with revenue and adj. EBITDA both ahead while distributable cash flow was lower and net debt higher. The focus currently remains on BC LCFS credit prices and the ongoing countervailing and anti-dumping duty investigation with a resolution expected to be in place by June 2025,” said Mr. Reynolds.
“We are maintaining a HOLD rating as we wait on better clarity as to where credit pricing ends up.”