METRO INC. $67 - Toronto symbol MRU

METRO INC. $67 (Toronto symbol MRU; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 87.0 million; Market cap: $5.8 billion; Price-to-sales ratio: 0.5; Dividend yield: 1.8%; TSINetwork Rating: Average; www.metro.ca) is Canada’s third-largest supermarket operator, after Loblaw (also in this issue) and Sobeys. It now has 600 supermarkets and 250 drugstores.

To cut its reliance on Quebec, which accounted for nearly all of its revenue, Metro bought A&P Canada for $1.7 billion in 2005. The chain consisted of 240 food stores in Ontario, mostly under the A&P and Dominion names.

Since then, Metro has mainly focused on improving the profitability of its stores. Lower costs will give the company more flexibility to adjust its prices, and cope with the recent 7.3% increase in Ontario’s minimum wage.

Meanwhile, Metro continues to profit from its 2011 purchase of 55% of Marche Adonis, which sells Mediterranean foods through seven stores. Metro is now adding Adonis’s products to its main outlets.

The company also holds a 5.7% stake in convenience store operator Alimentation Couche-Tard (Toronto symbol ATD.B). Based on current prices, this investment is worth $983 million, or 17% of Metro’s market cap.

Metro could sell this holding and use the cash to fund an acquisition, which would expand its geographic reach, or buy back more shares.

Metro is still a buy.

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