11.19
RBC CM is initiating coverage of Dollarama with Outperform, Average Risk Rating and $23 target. RBC CM expects DOL to outperform its peers for four reasons: 1. DOL offers above-average growth potential, driven by its industry-leading position, profitability metrics and square footage growth potential; 2. DOL’s superior merchandising skill should enable it to profitably grow its market share both geographically and on a category basis to drive strong, consistent growth; 3. DOL’s solid free cash flow generation should allow it to both de-lever its balance sheet and expand its square footage at an estimated 7% per year; and 4. DOL offers a good mix of defensive and cyclical business that should respond well in a recovery, or minimize downside risk in the event of a more prolonged downturn. RBC CM believes Dollarama’s premium valuation is warranted based on its sustainable, industry-leading profitability, peer group-leading square footage growth, solid free cash flow generation and strong earnings growth. Catalysts include better-than-expected performance, a market shift to defensive names, and an increased float.
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