METRO INC. (Toronto symbol MRU; www.metro.ca) has moved up sharply in the past few months. That’s mainly because it is taking steps to unlock some of its hidden value, including selling some of its investments. Metro will use the cash from the sales keep improving stores and help it compete with U.S. retailer Target Corp. (New York symbol TGT), which will open its first stores in Canada later this year. The company may also use some of the cash to buy back shares and increase its dividend. Metro is Canada’s third-largest supermarket operator after Loblaw and Sobeys. The company has about 600 supermarkets in Quebec and Ontario. It also operates 260 drugstores under the Brunet, The Pharmacy and Drug Basics banners. The company recently sold roughly half of its stake in Alimentation Couche-Tard Inc. (Toronto symbol ATD.B), which operates convenience stores in North America and Norway. (Couche-Tard is a recommendation of Stock Pickers Digest, our newsletter that focuses on aggressive investing. Our #1 Aggressive Stock Pick in 2012, Couche-Tard has risen over 75% since we made it number one among our stock picks in January 2012.) That left Metro with a 5.7% economic interest and a 17.0% voting interest in Couche-Tard. Metro received $412 million (after tax) for its Couche-Tard stake. The company will use some of that cash to buy back 2 million of its shares from private sellers at a discount to the market price. It aims to complete this purchase by April 30, 2013. [ofie_ad]
Metro continues to be an aggressive buyer of its own stock
Metro continues to benefit from store upgrades and small acquisitions. Sales rose 12.0%, from $10.7 billion in 2008 to $12.0 billion in 2012 (fiscal years end September 30). Earnings jumped 67.6%, from $280.8 million in 2008 to $470.6 million in 2012. The company is an aggressive buyer of its own stock. Because of fewer shares outstanding, per share earnings rose at a faster pace of 87.5%, from $2.48 in 2008 to $4.65 in 2012. Metro’s balance sheet remains strong. On December 22, 2012, its long-term debt was $991.6 million, or just 16% of its market cap. It also held cash of $27.9 million, or $0.29 a share. The company also recently raised its quarterly dividend by 16.3%, to $0.25 a share from $0.215. The new annual rate of $1.00 yields 1.6%. In the latest edition of The Successful Investor, we look at how well Metro will be able to respond to the challenge of Target’s big launch in Canada this year. We also examine Metro’s earnings outlook for 2013 and whether its share price can keep rising. We conclude with our clear buy-sell-hold advice on the stock. COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members Canada’s grocery stores face the challenge of a major American retailer, Target, launching a big expansion into Canada. Do you believe convenience and loyalty to familiar Canadian stores will favour Metro, Loblaw and Sobeys, or do you think they will see a significant drop in customers thanks to Target? Let us know what you think.
