Analysts Lower Expectations for Canadian Tire

Even stocks labeled as defensive in the consumer sector are getting a second look from analysts who fear a consumer spending slowdown in the U.S. could hurt Canada. Andy Nasr of Raymond James has reduced his 2008 earnings estimates on Canadian Tire Corp. (CDNTF.PK) to C$5.15 from C$5.44 and slashed his price target to C$65 from C$84.

“We believe that a weakening U.S. economy and lacklustre consumer spending will weigh negatively upon same-store sales and gross average receivable growth expectations into our model to reflect macroeconomic headwinds that will likely prevail for the next few quarters,” he said in a note to clients, adding the normally defensive retailer is “not immune from a slowdown in consumer spending.”

The strong Canadian dollar will not help the company until the second quarter of fiscal 2008 given the retailer’s hedging policy, whereby 75% of its U.S. dollar purchases are made six months in advance, noted Mr. Nasr. He rates the shares at “market perform.”

The analyst said:

If consumer spending weakens more than anticipated the company will likely have to respond by passing lower prices on to consumers, which would very largely absorb Canadian-dollar-related margin expansion.