Dollarama stock is undervalued, RBC says

Ahead of the company’s third quarter results, due December 4, RBC analyst Irene Nattel has raised her price target on Dollarama (Dollarama Stock Quote, Chart, News, Analysts, Financials TSX:DOL).

As reported by The Globe and Mail November 25, Nattel reiterated her “Outperform” rating on DOL and increased her price target from $147.00 to $160.00.

The analyst says Dollarama is a close to a sure thing as you are going to get in an uncertain world.

“In the current environment of uncertain global macro and policy outlooks, we favour names with proven performance across cycles and with superior visibility, predictability and sustainability of earnings growth,” she said. “In our view, recent multiple expansion at or slightly above one-standard deviation above the 10-year average should be sustainable. Accordingly, we raise our target multiple to 18.0 times from 16.5 times F27E EBITDA (January 2027), one standard deviation above the normalized 10-year average, 1.5 times lower than current NTM [next 12-month] valuation, and consistent with current C25E multiple.”

Nattel cautions that no retailer is perfect, but says DOL will be able to survive a potentially tough environment.

““DOL deep value positioning should sustain DOL as destination of choice for everyday household and seasonal items,” she wrote. “Having said that, we do not expect DOL to be immune to constrained consumer spending and expect modest SSS [same-store sales] pressure relative to H1, in part reflecting shift in timing of Halloween but also reflecting cautious consumer spending overall and intentional consumer spending patterns focused on buying closer to/at need.”

At press time, shares of Dollarama were