How Successful Investors Get RICH

Learn everything you need to know in 'The Canadian Guide on How to Invest in Stocks Successfully' for FREE from The Successful Investor.

How to Invest In Stocks Guide: Find 10 factors that make your investments safer and stronger.

 I consent to receiving information from The Successful Investor via email. I understand I can unsubscribe from these updates at any time.

Topic: Cannabis Investing

Wait-and-see approach to cannabis won’t dim this stock’s prospects

Read Next Article →

Cannabis-Connected

This stock recently bought a leading drugstore company with operations in several provinces. But unlike its main rival, Shoppers Drug Mart, the company’s pharmacy chain is taking a wait-and-see approach to cannabis sales. That’s largely because the provincial government in its biggest market has limited retail cannabis sales to government-owned locations.

Still, we like this stock’s long-term potential, with or without an immediate jump into cannabis sales.


YOUR MARIJUANA I.Q.

Think you know all about Marijuana and Investing?

Test your knowledge with our fun and easy Marijuana Investment Quiz.

Do so today and be a whiz!

METRO INC. $41 (Toronto symbol MRU; Shares outstanding: 227.1 million; Market cap: $10.7 billion; www.metro.ca) operates 600 grocery stores and 650 drugstores, in Quebec and Ontario.

On May 11, 2018, the company completed its acquisition of Jean Coutu Group. It operates 418 franchised drugstores in Quebec, New Brunswick and Ontario. Metro paid $4.5 billion (75% in cash, 25% in shares).

Metro has not yet applied for a licence to distribute medical cannabis through its drugstores as it’s waiting for more clarity regarding the new rules.

It’s also interested in eventually selling recreational cannabis. However, only its Ontario stores would be able to participate as the Quebec government has banned private retail cannabis stores.

Meantime, in its fiscal 2018 third quarter, ended July 7, 2018, Metro earned $183.4 million before costs related to the Jean Coutu acquisition and other unusual items. That’s up 11.1% from $165.1 million a year earlier. Due to the additional shares outstanding, earnings per share gained just 7.1%, to $0.75 from $0.70.

Overall sales rose 13.8%, to $4.63 billion from $4.07 billion. The new Jean Coutu operations contributed $476.0 million to the latest total. If you disregard the new operations, sales rose 2.4%.

Food same-store sales improved 2.0%. Higher prices accounted for a quarter of that gain. Same-store sales at the pharmacies rose 1.8%, reflecting a 0.4% increase in sales of prescription drugs and a 3.8% improvement in sales for other merchandise.

Metro ended the quarter with long-term debt of $2.9 billion, up from $1.4 billion as of September 30, 2017. Even so, that’s still a reasonable 32% of its $9.1 billion market cap. The company also held cash of $119.7 million.

Eliminating overlapping operations should let Metro cut $75 million from its annual costs by the end of fiscal 2021. The company also plans to offset higher minimum wages in Ontario by cutting back store hours and installing more self-checkout kiosks.

Those savings should increase the company’s projected earnings, from $2.53 a share in fiscal 2018 to $2.88 in 2019. The stock trades at a moderate 13.9 times the 2019 estimate.

With the March 2018 payment, Metro raised its quarterly dividend by 10.8%. Investors now receive $0.18 a share instead of $0.1625. The new annual rate of $0.72 yields 1.7%.

Metro is a buy.

Comments

Tell Us What YOU Think

You must be logged in to post a comment.

Please be respectful with your comments and help us keep this an area that everyone can enjoy. If you believe a comment is abusive or otherwise violates our Terms of Use, please click here to report it to the administrator.