LOBLAW COMPANIES LTD. $35 - Toronto symbol L

LOBLAW COMPANIES LTD. $35 (Toronto symbol L; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 281.4 million; Market cap: $9.8 billion; Price-to-sales ratio: 0.3; Dividend yield: 2.4%; TSINetwork Rating: Above Average; www.loblaw.ca) recently formed a partnership with J.C. Penney (New York symbol JCP).

Under this deal, Loblaw will build Joe Fresh casual-clothing boutiques inside 700 of Penney’s 1,100 department stores in the U.S. These outlets should open in April 2013. Penney will also sell Joe Fresh products through its website.

As well, Loblaw continues to invest in new computers as part of a plan to improve its efficiency and avoid product shortages in its supermarkets. In the three months ended June 16, 2012, the company spent $20 million on these initiatives. That’s the main reason why its earnings fell 19.3% in the quarter, to $159 million, or $0.56 a share, from $197 million, or $0.69 a share, a year earlier.

Sales rose 1.3%, to $7.4 billion from $7.3 billion. Same-store sales increased 0.2%. Revenue from the company’s financial services division, which mainly issues credit cards, rose 14.9%.

Loblaw trades at 14.2 times its likely 2012 earnings of $2.47 a share. However, its 2013 earnings could rise to $2.81 a share as it realizes more benefits from its efficiency plan. The stock trades at an even more reasonable 12.5 times that forecast. The $0.84 dividend yields 2.4%.

Loblaw is a buy.

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