CashNews.co
Shares of Canadian discount retailer Dollarama (DOL.TO) are destined for fresh all-time highs as consumers hunt for bargains this holiday season, say two Bay Street analysts.
Dollarama sells a mix of discount household and seasonal items, as well as packaged food, beverages, and snacks, through more than 1,500 corporate-operated locations across Canada. The Montreal-based company aims to hit 2,000 stores by 2031, and also owns a majority stake in growing Latin American value retailer Dollarcity.
Toronto-listed shares gained less than one per cent on Tuesday, adding to a more than 50 per cent rise year-to-date. The company is due to report third-quarter financial results for the three months ended Oct. 27 before the opening bell on Dec. 4.
BMO Capital Markets analyst Tamy Chen recently boosted her price target on the stock to $154 per share, from $147. Irene Nattel at RBC Capital Markets raised her price target to $160 from $147 on Monday. Each analyst maintains an “outperform” rating on Dollarama shares.
“Dollarama is the best-positioned Canadian retailer for pinched consumer budgets and the value-seeking spending backdrop that likely will continue into 2025,” Nattel wrote in a research note. “Although DOL is not immune to broader consumer spending pullback, in our view, the stock remains highly attractive, despite recent valuation expansion.”
Deputy Prime Minister Chrystia Freeland described a “vibecession” in Canada earlier this week as the federal government unveiled plans to send $250 cheques to millions of Canadians in concert with a GST tax break. “Vibecession” refers to a prevailing negative attitude about the economy despite data that generally reflect more optimistic conditions.
“[Dollarama’s] relative same-store performance clearly stands out against the backdrop of stretched consumer wallets and value-seeking behaviour,” Nattel added.
BMO’s Chen says a proprietary survey of 1,500 Canadians on Nov. 1 conducted in partnership with Leger found that the number of respondents who indicated they shop at Dollarama at least weekly increased slightly to 31 per cent from 29 per cent in June.
“We believe the stock’s year-to-date rally reflects a flight to high-quality ‘safe-haven’ companies,” Chen wrote on Monday. “Over the near term, we recommend investors monitor for any pullbacks in the stock.”
Looking at the third quarter, Nattel says Dollarama’s sales at stores open for more than one year (same-store sales) will face pressure compared to the first half of the year, due in part to the timing of Halloween.