LOBLAW COMPANIES $53.05 (Toronto symbol L; Shares outstanding: 413.9 million; Market cap: $21.9 billion; TSINetwork Rating: Above Average; Dividend yield: 1.9%; www.loblaw.ca) is Canada’s largest food retailer, with about 1,200 stores. Its banners include Loblaws, Provigo, Fortinos, Real Canadian Superstore and No Frills.
In March 2014, the company completed the acquisition of the 1,250-store Shoppers Drug Mart chain. Loblaw paid $12.3 billion; $6.6 billion in cash and $5.7 billion in Loblaw common shares.
Loblaw’s parent company, George Weston Ltd. (see below), helped it pay for Shoppers by purchasing $500 million of new Loblaw shares. Due to the extra shares outstanding, Weston now owns 46% of Loblaw, down from 63% before the acquisition.
In the quarter ended June 14, 2014, Loblaw’s sales rose 37.1%, to $10.3 billion from $7.52 billion a year earlier. Without Shoppers’ contribution, sales rose 2.4%. Before one-time items, earnings gained 17.2%, to $0.75 a share from $0.64.
The addition of Shoppers Drug Mart should increase Loblaw’s earnings to $2.82 a share in 2014, and the stock trades at 18.8 times that estimate. Its 2015 earnings should reach $3.41 a share, and the stock trades at a more reasonable 15.6 times that forecast.
Cost savings from the merger will also give Loblaw further room to raise its dividend. The company just increased its quarterly payout by 2.1%, to $0.245 a share from $0.24, with the July 2014 payment. The stock yields 1.9%.
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