Loblaw Companies Ltd. $28 - Toronto symbol L

Loblaw Companies Ltd. $28 (Toronto symbol L Conservative Growth Portfolio, Consumer sector; Shares outstanding: 274.2 million; Market cap: $7.7 billion; SI Rating: Above average) Loblaw is Canada’s largest grocery store operator, with over 1,000 company-owned and franchised stores. Major banners include Loblaw, No Frills, Provigo and Real Canadian Superstore. George Weston Ltd. owns 61% of Loblaw’s stock. Loblaw is currently restructuring its operations, as it de-emphasizes general merchandise and focuses on food. This includes overhauling its supply chain and computerized inventory systems to improve in-store availability and product freshness. The company also aims to make better use of its size to secure lower purchase prices from its suppliers. It will take several months before Loblaw realizes the benefits from improving productivity. Its operating margin (earnings after regular operating costs divided by revenue) will probably fall from 5.5% in 2007 to 5.0% in 2008. Margins should eventually improve to between 6% and 7%, but could have a hard time matching Loblaw’s all-time high of 8.1% in 2005. Loblaw trades at 14.2 times its likely 2008 earnings of $1.97 a share. That’s high for a grocery retailer, but reasonable in view of its leading market share and sizeable real estate holdings. The $0.84 dividend seems safe, and yields 3.0%. Loblaw is a hold.

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