The TMX Group Ltd. headquarters in the financial district of Toronto, Ont. Photo by Laura Proctor/Bloomberg files

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Why Dollarama bulls outnumber bears, how a possible Iran peace deal could smooth waters for cruise line stocks and more from The Week in Stocks. 

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Stock of the week: TMX Group Ltd.

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TMX Group Ltd.‘s (X/TSX) push to expand its operations globally continues with the acquisition of RAFI Indices — a global index company — for $683 million or approximately five per cent of TMX’s market cap. Scotia Capital Markets analyst Phil Hardie said the deal supports TMX’s goal of expanding recurring revenue and boosting international revenue, adding that the operator of the S&P/TSX composite index continues to be his top pick. Hardie maintained his price target for TMX of $71. Shares closed Friday at $50.48. “We think this deal (for RAFI) reinforces our underlying thesis of continued earnings momentum and that accretive M&A remains a key catalyst for the stock over the next 12–18 months,” he said.  The deal for RAFI will add to debt, but Hardie said TMX has a track record of successfully deleveraging. Meanwhile, the company has pledged that during the period it will continue to support its long-term dividend payout ratio of 40 per cent to 50 per cent. Shares of TMX have ridden a rollercoaster this year falling to about $44 in February before rising 26 per cent to $56 in May before slumping to just under $48 in early June. Since then it has risen nearly eight per cent. TMX has a 12-month price target of $65.03 based on the estimates of eight analysts, according to Bloomberg.

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Keeping score

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UBS looks at bull and bear cases in the food retail sector

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The macroeconomic environment isn’t on the side of the food retail and food distribution sector with inflation and gas prices on the rise, Michael Lasser, an analyst at UBS Global Research, said in a report on June 8 that covered both United States and Canada-based companies. Lasser turned his eye to Loblaw Cos. Ltd. (L/TSX), Alimentation Couche-Tard Inc. (ATD/TSX) and Dollarama Inc. (DOL/TSX) in Canada, examining the bull and bear cases for each of the names. Sentiment on mega-grocer Loblaw is “mixed,” Lasser said, with the bulls arguing it can continue to win from its substantial discount footprint, while bears wonder whether slowing population growth in Canada will hit its multiple. Loblaw has a 12-month price target of $70 based on the calls of 10 analysts, according to Bloomberg. Shares closed Friday at $65. On Dollarama, “we’re hearing more from bulls than bears,” he said, noting that investors believe financially-stretched Canadians consumers will continue to “trade down” to the Montreal-based discount chain. Still, bears warned that Dolllarama’s move into Australia could drag on earnings amid changes to immigration policy. Dollarama has a 12-month price target of $210.08 based on the calls of 17 analysts, according to Bloomberg. Shares closed Friday at $190.94. Finally, sentiment around Alimentation Couche-Tard was more positive than negative on the belief it “has turned the corner on food” by offering cheap, quick meals for $3, $4 and $5. Couche-Tard has a 12-month price target of $92.82 based on the calls of 19 analysts, according to Bloomberg. Shares closed Friday at $84.31.

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Possible Iran interim peace deal could smooth waters for cruise shares

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Shares of cruise companies Carnival Corp. Ltd. (CCL/NYSE), Royal Caribbean Cruise Ltd. (RCL/NYSE) and Norwegian Cruise Line Holdings Ltd. (NCHL/NYSE) rose six to eight per cent on reports of a possible interim Iran peace deal on the weekend that would include reopening the Strait of Hormuz. That led TD Cowen analyst Kevin Kopelman to cut his 2027 estimate for Brent crude oil to US$60 a barrel from US$90 and “could drive earnings per share (EPS) revisions” on the three cruise companies, he said. Kopelman’s top pick is Carnival. He pencilled in a 23 per cent increase in EPS for 2027 to US$3 from US$2.39. The company, which does not hedge fuel costs, is down 11 per cent since the start of the conflict against a gain of 7.5 per cent for the S&P 500 composite index. Carnival has a 12-month price target of US$34.09 based on the calls of 25 analysts, according to Bloomberg. Shares closed Friday at $29.18. For Royal Caribbean and Norwegian, Kopelman has increased his EPS estimates seven per cent and 27 per cent, respectively.