METRO INC. $39 - Toronto symbol MRU

METRO INC. $39 (Toronto symbol MRU; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 241.5 million; Market cap: $9.4 billion; Price-to-sales ratio: 0.8; Dividend yield: 1.2%; TSINetwork Rating: Average; www.metro.ca) operates 600 grocery stores and 250 drugstores in Quebec and Ontario. In its 2015 fiscal year, which ended September 26, 2015, Metro’s earnings rose 13.6%, to $523.6 million from $460.9 million in 2014. It spent $418.0 million on share buybacks in 2015, which is why earnings per share gained 18.7%, to $2.03 from $1.71. Overall sales rose 5.5%, to $12.2 billion from $11.6 billion. Same-store sales increased 4.0%. Some of these gains come from Metro’s 75% stake in bakery Première Moisson, which it bought for $101.6 million last year. Première Moisson has 23 stores and three plants in Quebec. Rising food prices are also boosting Metro’s results. The company has an underappreciated asset in its 5.7% stake in Alimentation Couche-Tard (Toronto symbol ATD.B). (Couche-Tard, which operates convenience stores in North America and Europe, is a recommendation of Stock Pickers Digest, our newsletter for aggressive investing.) In fiscal 2015, Metro’s share of Couche-Tard’s earnings jumped 29.1%, to $64.3 million from $49.8 million in 2014. The company’s long-term debt of $1.15 billion is a low 12% of its market cap. It also holds cash of $21.5 million. Metro’s earnings will probably rise to $2.26 a share in 2016, and the stock trades at 17.3 times that estimate. That’s high, but it’s still reasonable in light of the company’s strong growth prospects. The $0.47 dividend yields 1.2%. Metro is a buy.

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