IBC World Markets has initiated coverage of Cara Operations Ltd. (CAO-T) with a “sector performer”  recommendation and $35 target.

While that is around the price the restaurant operator is currently trading, analyst Perry Caicco sees potential upside ahead including “a long menu of acquisition opportunities.”

Cara is Canada’s third-largest restaurant operator, with 11 brands such as Harvey’s, Swiss Chalet, and Milestones, and has a three-per-cent share of the fragmented Canadian restaurant industry. About 85 per cent of its businesses are franchised.

“With only 30 per cent of its assets outside of Ontario; only a modest representation in quick-service; a largely missing day part (breakfast); and voids in categories such as Italian, Asian, Mexican, Middle Eastern and food court, Cara has a very open playing field,” Mr. Caicco said in a note on Oct. 26.

He said the business has been restructured and costs lowered, and that Cara has been driving sales with more aggressive weekly promotions.

Its initial public offering earlier this year, which came about 10 years after it went private in 2004, Cara has helped to delever the balance sheet, Mr. Caicco said, which will be helpful as it seeks acquisitions.

“The industry itself is benefitting from a generally good economy and cash in consumers’ pockets from low gas prices, so acquisitions won’t come cheap,” Mr. Caicco said.

“We give Cara a premium 11 times EV/EBITDA multiple on its corporate restaurants; a premium 16 times multiple on its franchise operations; and 9 times for EBITDA generated out of its central service bucket,”          Mr. Caicco said. (EV/EBITDA is enterprise value – the market value of all its shares plus the company’s net debt – in comparison to its earnings before interest, taxes, depreciation and amortization.)

Six out of eight analysts that cover the stock have a “buy” rating and two have a “hold,” according to Thomson Reuters. The analyst consensus price target for Cara over the next year is $38.75. The stock is up seven per cent since it went public in April.

Canaccord Genuity has upgraded Canadian Pacific Railway Ltd (CP-T, CP-N) to “buy” from “hold” and hiked its target price saying the company offers good growth, “at a reasonably good price.”

Analyst David Tyerman increased his target by $10 to $225 (Canadian) after Canada’s No. 2 railway reported better-than-expected third-quarter profit. Higher freight rates and lower operating costs helped.

CP reported adjusted earning per share of $2.69,

up 16 per cent compared to the same quarter last year,  slightly beating consensus at $2.68.

“CP’s good performance was despite weak volume conditions,” amid weaker grain, coal, energy and intermodal markets, Mr. Tyerman said in a note published on Oct. 20.

He expects weak Canadian and emerging markets to continue to weigh on CP’s volumes into the fourth quarter but also sees “good but slowing margin expansion.”

He noted that CP expects to expand its EBIT (earnings before interest and tax) margin by two-to-three per cent in coming years “and more with a more robust economy.”

Mr. Tyerman is projecting a 2.6-per-cent increase in CP’s EBIT margin over the next the years.

BMO Capital Markets analyst Fadi Chamoun maintained his “outperform” on CP and his $230 (Canadian) target after the latest earnings.

“Against the backdrop of softer volume, lower fuel prices and unfavourable mix shifts, CP Rail was still able to generate operating income growth of more than 10 per cent year-over year,” Mr. Chamoun noted.

TD Securities analyst Cherilyn Radbourn upgraded CP to “hold” from “reduce” and raised her target to $200 from $190.

Among the 18 analysts that cover CP, 14 have a “buy” rating and four have a “hold,” according to Thomson Reuters. The analyst consensus price target for CP over the next year is $215.15.

CP shares are down about 12 per cent over the past year, hurt by Canada’s weak economic growth. That compares to a six-per-cent increase in main rival Canadian National Railway Co.

Canaccord Genuity is hiking its 12-month target price on First Quantum Minerals Ltd. (FM-T) to $12 from $4, and sticking with its “buy” recommendation following a review of the company’s global projects.

Analyst Gary Lampard said he reviewed his valuation model to incorporate recent operating and project development updates, enhanced liquidity initiatives, and site visits at Kansanshi and Sentinel in Zambia.

“From the site visits, we conclude that Sentinel should ramp up quickly to year-end, with issues related to power availability, metallurgical behaviour of transitional ore, and availability of a second primary crusher likely to be resolved within the next one-two months,” he said in a note on Oct. 14.  “At Kansanshi, mine expansion is now dependent upon cash availability, and high product inventory continues to tie up working capital.”

While First Quantum’s balance sheet remain “a key issue,” Mr. Lampard believes the company’s recent liquidity initiatives “will substantially alleviate balance sheet pressure.” That includes First Quantum’s commitment to reduce net debt by $1 billion (U.S.) by end of the first quarter of 2016 through a combination of asset sales and “other strategic initiatives”.

Mr. Lampard believe Kevitsa is the most likely asset divestiture. First Quantum recently struck a deal with  streaming company Franco-Nevada Corp. (FNV-T), which will provide it with a $1 billion (U.S.) deposit against future deliveries of gold and silver from its  Cobre Panama copper project. Initial funding is expected to be $330 million to $340 million.

Vancouver-based First Quantum produces copper, nickel, gold, zinc, platinum-group elements, and pyrite through seven operating mines. It has mines and development projects in Zambia, Spain, Mauritania, Australia, Finland, Turkey, Panama, Peru, and Argentina.

The miner’s shares are down more than 50 per cent on the Toronto Stock Exchange over the past year. Like most miners, the company has been hit by the ongoing slump in metal prices.

The analyst consensus price target for First Quantum Minerals over the next year is $13.96, which is nearly double its current price around $7.60. Among  26 analysts that cover the stock, 13 have a “buy,” 12 have a “hold” and one says “sell,” according to Thomson Reuters.

Salman Partners is upgrading Polaris Infrastructure Inc.  (PIF-T) to “top pick” from “buy,” believing its upcoming capital program will lead to “impressive growth in operational and financial performance.”

The Toronto-based renewable energy company buys, explores, develops, and operates geothermal energy projects in North and South America. It currently operates the San Jacinto geothermal project in Nicaragua.

After hosting meetings with top management and institutional investors recently, analyst Nav Malik said that was talk of implementing a dividend, following the results of a $30-to-$35-million capital program. That involves drilling up to three production wells and completing a workover program

“We believe Q2/16 is likely a ‘best-case scenario’ and any unexpected delays may push the dividend decision to late 2016 or early 2017,” Mr. Malik said in a  n Oct. 7 note. “Nonetheless, we think the dividend can be substantial.”

Mr. Malik is the lone analyst on the stock at this time, with a target of $13.50 which is about 6 per cent above its current price around $10.50.

In May, Polaris completed an equity financing and recapitalization transaction for gross proceeds of approximately $74 million and changed its name from Ram Power Corp. Its outstanding debentures were converted into shares of the company, which were consolidated at a ratio of 2,000:1.

Following the recapitalization, Polaris has about 15.5 million shares outstanding, which represented a market capitalization at the time of approximately $152 million. The public float is about 88 per cent.

The board was also reconstituted and Marc Murnaghan was appointed as its chief executive. He has more than 20 years of capital markets experience in the power and alternative energy industry.

In his Sept. 14 note initiating coverage on Polaris, Mr. Malik said the company’s upcoming capital program may lead to higher power output, and a significant increase in earning before interest, taxes, depreciation and amortization (EBITDA) and free cash flow (FCF).

Mr. Malik noted that Polaris is drilling up to three additional production wells over the next year to add about 15 MW of additional power generation. That should bring overall power output at the San Jacinto to 63 MW by the beginning of 2017.

“At that level, we estimate EBITDA of $55 million and FCFPS (free cash flow per share) of $1.66 — over double 2015E FCFPS and implying a 21 per cent FCF yield at the current share price,” he noted.

He said paying out 50 of FCF implies a dividend of $1.04 (Canadian), which equates to a 10-per-cent yield at the current share price.

“Given the length and magnitude of the depreciation of the dollar, we expect the flow through to earning per share and cash flow to be more evident, while we also continue to believe that oil prices and the U.S. Federal Reserve will have a significant impact on the Canadian dollar going forward,” the analysts said in a Sept. 28 note.

Below is a handful of stocks on their radar, all of which they recommend as a “buy.”

Hardwoods Distribution (HWD-T): Analyst Russell Stanley has a $20 target on this stock, which now trades around $16. Hardwoods is a wholesale distributor of hardwood lumber and related sheet good products operating from 33 facilities in the U.S. and Canada. It reports in Canadian dollars, but approximately 79 per cent of its revenue in the first half of 2015 came from sales in the U.S., Mr. Stanley notes.

Theratechnologies (TH-T) and Medicure (MPH-V): Analyst Andre Uddin cites these two small cap Canadian specialty pharma stocks that generate most, if not all of their current sales in U.S. dollars and report their financial results in Canadian dollars. “Both stocks have performed well since we initiated coverage on them (TH-T is up over 300 per cent and MPH-V is up over 70 per cent), as each company has a product that is growing at a decent pace in the U.S.,” Mr. Uddin notes. He has a $3.50 target on Theratechnologies (now trading at $2) and a $$4.50 on Medicure (now trading at $3.70). 

The Intertain Group Ltd. (IT-T): Intertain generates the majority of its revenue in Europe. That means a weaker loonie should improve reported revenue, given that Intertain reports results in Canadian dollars, notes analyst Nikhil Thadani. He has a $27 target on the stock, now trading around $12.50.

“Since marketing expenses are incurred in local currencies, natural hedges should partially mitigate FX earnings impact,” he said in a note.

Alamos Gold Inc. (AGI-T): Analyst Barry Allan said he expected this year to be a transitional one for Alamos, as its Mulatos mine in Mexico moves to lower grade production. Then the company bought AuRico Gold in July, bringing the Young-Davidson mine in Ontario into Alamos’ portfolio, accounting for about 45 per cent of production, “bringing the benefit of the higher Canadian dollar gold price to Alamos,” he said in a note. He has an $8.50 target on Alamos, which is now trading around $5.

Analyst David Tyerman said Magna International Inc. (MGA-N, MG-T),  Linamar Corp. (LNR-T) and Martinrea International Inc. (MRE-T) don’t have too much exposure to Volkswagen (VW).

“Magna reports that 11.3 per cent of its 2014 sales were to VW. Linamar has reported that VW sales are less than 5 per cent of its total sales and that it does not expect a material impact from the situation,” Mr. Tyerman said in a Sept. 24 note. “We believe Martinrea’s exposure is likely in the range of Linamar, given its similarly small European exposure.”

He has a “buy” on all three companies, noting that any loss in market share for VW would likely be offset by gains for other auto manufacturers. What’s more, VW might be able to resolve its engine compliance issue, “possibly in relatively short order,” Mr Tyerman said. “So VW product availability may be minimally impacted.”

CIBC World Markets analyst Todd Coupland downgraded Magna stock after the VW news, noting the German-based manufacturer is one of Magna’s biggest customers.

“At the moment, we do not know the flow-through impact and neither does Magna which they readily admit,” said Mr. Coupland in a Sept. 23 note. “VW’s share loses could go onto other Magna programs or they may not.”

He also reduced his target price for the U.S. issue of the stock to $52 (U.S.) from $62.50. The analyst consensus is $66.69. Shares of Magna are down 8 per cent over the past year in New York (see chart below) and are currently trading around $47.50.

Linamar’s stock has increased 18 per cent in Toronto over the past year, to around $69.50. The analyst consensus price target for Linamar Corp over the next year is $92.14. Martinrea’s stock is down 22 per cent in Toronto over the past 12 months, now trading around $10.75. The analyst consensus price target for Martinrea over the next year is $17.

BC Dominion Securities recently initiated coverage of  software company Zendesk Inc. (ZEN-N) with an “outperform” and $27 (U.S.) target. That’s about 25 per cent above where the stock is currently trading around $21.70.

San Francisco-based Zendesk, which offers a platform to help companies interact with their customers, is a “disruptive best-of-breed player in the large service automation market,” said analyst Ross MacMillan.

Even though the company is in a highly competitive market, Mr.  MacMillan sees it as a “rapid innovator with attractive unit economics.” It could also be a potential takeover target for a larger player, he notes.

All nine analyst that cover the stock have a “buy” recommendation on it. The analyst consensus price target for Zendesk Inc over the next year is (U.S.) $28.88.

Credit Suisse analyst Philip Winslow recently upgraded his rating on Zendesk to “outperform” from “neutral,” saying the software market “underappreciates” the company’s ability to keep up its strong revenue growth.

“In our opinion, Zendesk is well positioned to monetize the growing need among under serviced small- and medium-sized businesses for modern, multichannel customer service technologies,” Mr. Winslow said in a note. He cited unique advantages of its cloud-based application architecture and improvements to its customer service functions.

Zendesk provides software as a service (SaaS) customer service platform, which includes answering customer questions and problem solving through email, chat, voice, social media and websites.

“We expect Zendesk to continue to gain market share in customer service,” Mr. Winslow said. He raised his price target for the stock to $30 from $25.

The shares are down about six per cent over the past year (see chart below) and have underperformed the S&P 500 by about three per cent over the same period.

CIBC World Markets has significantly boosted its target price on Dollarama Inc. (DOL-T), to $94 from $77, after the retailer reported a “stunning quarter.”

Analyst Perry Caicco said second-quarter earnings per share, which came in at 74 cents – up 45 per cent versus 51 cents in the second quarter last year – were well above forecasts. Net income rose to $95.5 million from $68.9 million in the year-earlier period.

“The trick was their management of the Canadian dollar,” Mr. Caicco said in a note. “ They adjusted price points and merchandise anticipating a weaker CAD, but are hedged for about six more months.”

As hedges roll off, he said gross margins will return to normal. Mr. Caicco increased his multiple from 25 times to 27 times, which he said is on a level with Costco (COST-Q), “a company not dissimilar to DOL.” He rates the company “sector outperformer.”

BMO Capital Markets analyst Peter Sklar said Dollarama reported a strong quarter “across the board” and was well above expectations. That included higher-than-expected same-store sales and a large improvement in gross margin (which he too said isn’t likely sustainable at the current level).

Still, Mr. Sklar finds the stock “fully valued” at its current price around $86. He did increase his target to $85 from $80, but continues to rate the company “market perform.”

Among 15 analysts that cover the stock eight have a “buy,” and five say “hold,” while two see it as a “sell,” according to Thomson Reuters.

The analyst consensus price target for Dollarama over the next year is $80.86, which is below where the stock is now trading just below $87.

The stock has increased by more than 80 per cent over  the past year (see chart below) and hit an all-time high of $88.25 on Friday, the day after it said second-quarter profit surged 38.6 per cent as customers spent more per transaction at its stores. Same-store sales increased about eight per cent and overall revenue rose 14 per cent to $653.3 million.

“The careful execution of our merchandising strategy and the implementation of operational improvements have made us stronger as we grow,’ stated chief executive Larry Rossy.