Double-double coffee and double-digit forecasted earnings put Canadian restaurant stalwart Tim Hortons Inc. at the top of Desjardins Securities Inc. analyst Keith Howlett's consumer discretionary picks for 2012.
With strong growth in both same-store sales and restaurant unit count and a cash-generative franchise business model, Howlett sees a potential 20.4 per cent return for 2012, including dividends.
However, the company does face headwinds this year in the form of a new president and CEO, ongoing changes to its store format and further development of its international growth strategy. "Management will need to keep a watchful eye on the market impact of the McDonald's McCafe roll-out and the accompanying restaurant renovation program in Canada," says Mr. Howlett.
Upside: Mr. Howlett reiterated his "buy" rating and maintained a price target of $58 (Canadian). That's modestly more bullish than the median Street price target of $54.08, according to Bloomberg. Out of 16 analysts who follow the stock, seven currently rate it as a buy and nine as a hold.
Desjardins Capital Markets analyst Keith Howlett's favourite consumer staples stock for 2012 is Loblaw , despite investor skepticism over just how 'transitional' the company's incremental IT spending actually is.
Mr. Howlett notes that while a "vastly improved supply chain and up-to-date information systems" should push Loblaw to improved margins, it has been somewhat dogged by transitional incremental operating costs and lingering capital costs associated with this transformation.
"While management states that the incremental transitional operating costs will peak in 2012, investors appear skeptical that the expenses will ever disappear," says Mr. Howlett.
He expects growth of Loblaw's earnings per share in the high single digits for 2012 and a possible dividend increase in 2013.
Upside: Mr. Howlett maintains both his "Buy" rating and $47 (Canadian) target price.
Canaccord Genuity Inc. analyst Aravinda Galappatthige has nothing but applause for Cineplex Inc.'s business model and market position, but the industry's current malaise has him cautioning potential investors on the stock.
"We like Cineplex because we believe it is a good combination of a low-risk profile, an attractive yield and meaningful growth," says Mr. Galappatthige. "The low risk profile is derived from its dominant market position, coupled with the longer term stability of the box office."
However, due to fourth-quarter year-over-year Canadian box office sales being down an estimated 3.8 per cent, he expects Cineplex fourth-quarter box office revenues to be down 2.9 per cent.
Downside: Mr. Galappatthige cut his price target by 75 cents to $25.75 (Canadian) and maintained a "hold" recommendation.
Good news from a recent exploration update from Premier Gold Mines Ltd. has prompted Versant Partners analyst Rob Chang to increase his estimates for the company's Trans-Canada Project.
Mr. Chang now estimates the Ontario mine contains 4.5 million ounces of gold, up from his previous estimate of 3.6 million ounces.
Upside: After updating his model to reflect revised commodity price forecasts and production timelines, Mr. Chang reiterated his "buy (speculative)" rating and raised his target price 40 cents to $12.00 per share.
SilverCrest Mines Inc.'s new La Joya silver-copper-gold discovery is yet another reason the miner is Jennings Capital Inc. analyst Stuart McDougall's top pick for 2012.
The initial resource estimate for the Durango State, Mexico project far exceeded Mr. McDougall's tonnage and contained metal expectations. But it fell short on grades. "That said, we do not see this as an issue, given the more recent drill results, stated potential amenability to conventional flotation methods and obvious upside at higher cut-off grades should that become necessary," he said. "In short, we think the stock continues to trade at a significant discount to its peer group, making it an even more appealing investment opportunity with the new resource estimation."
Upside: Mr. McDougall reaffirmed his "speculative buy" rating and price target of $5