LOBLAW COMPANIES $39.72 - Toronto symbol L

LOBLAW COMPANIES $39.72 (Toronto symbol L; Shares o/s: 278.4 million; Market cap: $11.1 billion; TSINetwork Rating: Above Average; Dividend yield: 2.1%; www.loblaw.ca) is Canada’s largest food retailer. It now has around 1,000 company-owned and franchised stores. George Weston Ltd. owns 62% of Loblaw’s shares. In the three months ended October 9, 2010, Loblaw’s earnings per share rose 11.6%, to $0.77 from $0.69 a year earlier. Restructuring costs lowered its earnings per share by $0.12 in the latest quarter. Overall sales rose 1.3% in the latest quarter, to $9.6 billion from $9.5 billion. The gain was largely due to T&T Supermarket Inc., Canada’s largest Asian food retailer, which Loblaw bought in 2009. Loblaw’s same-store sales fell 0.4%. Lower sales of drugs and general merchandise offset stronger clothing sales. Food sales were flat. Loblaw trades at 15.0 times its likely 2011 earnings of $2.65 a share. That’s a high p/e ratio for a retailer. However, it could earn as much as $3.05 a share in 2011 and $3.65 in 2012. The shares trade at 13.0 times the 2011 estimate, and 10.9 times the 2012 forecast. The company’s improving productivity will help it offset rising food prices. As well, its high market share makes it easier to pass along higher prices to its customers. Moreover, George Weston could buy the 38% of Loblaw that it doesn’t already own. That adds appeal. Loblaw is a buy.

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