CANADIAN TIRE CORP. CTC $197 and CTC.A $135

CANADIAN TIRE CORP. (Toronto symbols CTC $197 and CTC.A $135; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 73.5 million; Market cap: $10.1 billion; Price-to-sales ratio: 0.8; Dividend yield: 1.7%; TSINetwork Rating: Above Average; www.canadiantire.ca) owns 498 Canadian Tire stores. They sell automotive, household and sporting goods. Franchisees run most of these outlets. Other operations include 296 gas stations and 91 PartSource auto parts stores. New markets have paid off Canadian Tire has acquired two big specialty retailers in the past few years: Mark’s sells casual and work clothing through 380 stores; and the Forzani Group sells sporting goods and athletic wear through 433 stores, including Sport Chek and Sports Experts. Those retail chains help Canadian Tire better compete with Wal-Mart, Home Depot and Costco. Thanks partly to acquisitions, Canadian Tire’s sales rose 20.0%, from $10.4 billion in 2011 to $12.5 billion in 2014. Sales then declined 1.5% to $12.3 billion in 2015. That’s because lower gasoline prices hurt revenue at its gas stations. Earnings rose 41.2%, from $467.0 million in 2011 to $659.4 million in 2015. Due to fewer shares outstanding, earnings per share jumped 50.8%, from $5.71 to $8.61. The company is in the second year of a new three-year growth plan. This includes building new stores, and renovating current ones. It’s also expanding its e-commerce operations and investing in new systems that let customers pay using their smartphones. In 2015, Canadian Tire spent $529.0 million on these and other growth initiatives. This year, it will probably spend $625.0 million. Growth targets look achievable Canadian Tire expects its growth plan to boost sales by 3% at Canadian Tire and 9% at its sporting goods stores each year through 2017. However, Mark’s may miss its goal of raising its annual sales by 5% due to the weak economy in Alberta. The company can easily afford to keep investing in its operations. As of December 31, 2015, Canadian Tire held cash and investments of $1.15 billion, or $15.53 a share. Its long-term debt of $3.0 billion is a moderate 30% of its market cap. Low p/e in light of earnings potential Canadian Tire’s growth plan should also increase its earnings per share by 8% to 10% in both 2016 and 2017. Using the midpoint of that range, the company will probably earn $9.38 a share this year and the stock trades at an attractive 14.4 times that forecast. Better earnings will also give Canadian Tire more room to raise its dividend; the current annual rate of $2.30 a share yields 1.7%. It aims to pay out 25% to 30% of its annual earnings as dividends. The class A non-voting shares are more liquid than the closely held voting shares. Canadian Tire class A stock is a buy.