LOBLAW COMPANIES LTD. $56 (Toronto symbol L; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 413.5 million; Market cap: $23.2 billion; Price-to-sales ratio: 0.5; Dividend yield: 1.8%; TSINetwork Rating: Above Average; 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, Loblaw bought the 1,250-store Shoppers Drug Mart chain for $12.3 billion in cash and stock.
Thanks to Shoppers, Loblaw’s sales jumped 37.1%, to $10.3 billion, in the second quarter of its 2014 fiscal year, which ended June 14. It earned $7.5 billion a year earlier.
Without Shoppers, overall sales gained 2.4%, while samestore sales rose 1.8%. That’s mainly because the Easter holiday fell in the second quarter this year, instead of the first quarter.
Without unusual items, earnings gained 66.3%, to $301 million from $181 million. Per share earnings gained 17.2%, to $0.75 from $0.64, on more shares outstanding.
Loblaw continues to benefit from recent improvements to its PC credit card loyalty program. Revenue from its financial services division (2% of the total) rose 29.7%, while earnings soared 44.4%.
Loblaw borrowed most of the cash it needed to buy Shoppers. That’s why its long-term debt jumped to $11.8 billion (or a high 51% of its market cap) from $6.7 billion at the end of 2014. However, the company expects eliminating overlapping functions to save it $300 million annually by the end of the third year.
The stock has gained nearly 20% since the Shoppers purchase. It now trades at 18.8 times the $2.98 a share that Loblaw should earn in 2014. The $0.98 dividend yields 1.8%.
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