price to sales ratio

TECK COMINCO LTD. $5.73 (Toronto symbol TCK.B; Conservative Growth Portfolio, Resources sector; Shares outstanding: 449.4 million; Market cap: $2.6 billion; Price-to-sales ratio: 0.4; SI Rating: Extra risk) currently sells its coal to steelmakers for about $300 U.S. a tonne. However, the company must re-negotiate these contracts each year, and prices in 2009 could drop by 50% or more. That could make it harder for Teck to repay a $5.8 billion U.S. bridge loan that it used to fund its recent purchase of Fording Canadian Coal Trust. Teck now plans to cut 13% of its workforce, and reduce coal production by 20%. These moves should save it roughly $85 million a year. Tax refunds and sales of certain businesses should also give Teck $2.4 billion for debt repayments. That should make it easier for the company to convert the remaining part of the bridge loan into a more manageable long-term loan. Teck Cominco is still a buy.

TRANSCONTINENTAL INC. $8.50 (Toronto symbol TCL.A; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 80.8 million; Market cap: $686.8 million; Price-to-sales ratio: 0.3; SI Rating: Average) now trades at just 5.1 times its forward earnings estimate of $1.66 a share. That’s mainly because advertisers are shifting away from traditional direct mail services to the Internet. Direct marketing accounts for 50% of Transcontinental’s revenue, and 40% of its profit. Transcontinental is also a major commercial printer (25% of revenue, 30% of profit). Many of its major customers, such as newspaper publishers, are now stagnating as the slowing economy hurts their circulation sales and advertising revenues. The slowdown is also putting pressure on Transcontinental’s own publishing operations, which consists of 42 magazines and 172 newspapers, primarily in eastern Canada (25% of revenue, 30% of profit)....

Transcontinental has dropped roughly 40% in the past three months, as the turmoil in credit markets has hurt its direct mail operations. Lower advertising spending has also weighed on its publishing business. However, the company is doing a good job controlling costs and expanding its Internet businesses. That should help it cope with the current downturn. TRANSCONTINENTAL INC. $8.50 (Toronto symbol TCL.A; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 80.8 million; Market cap: $686.8 million; Price-to-sales ratio: 0.3; SI Rating: Average) now trades at just 5.1 times its forward earnings estimate of $1.66 a share. That’s mainly because advertisers are shifting away from traditional direct mail services to the Internet. Direct marketing accounts for 50% of Transcontinental’s revenue, and 40% of its profit. Transcontinental is also a major commercial printer (25% of revenue, 30% of profit). Many of its major customers, such as newspaper publishers, are now stagnating as the slowing economy hurts their circulation sales and advertising revenues....

BOMBARDIER INC. (Toronto symbols BBD.A $4.57 and BBD.B $4.50; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.7 billion; Market cap: $7.7 billion; Price-to-sales ratio: 0.4; SI Rating: Extra risk) has received an order from Germany’s state-owned railway for 800 passenger railcars. The deal is worth $2.1 billion, or 10.5% of Bombardier’s annual revenue of about $20 billion (all amounts except share price and market cap in U.S. dollars). Bombardier’s Transportation division supplies half of its overall revenue, but just 35% of its profit. However, its gross margin (gross profits as a percentage of sales) improved to 5.1% in its latest quarter from 4.2% a year earlier. It also stands to gain from further spending by governments on new public transit infrastructure projects. As well, growing demand for railcars offsets the cyclical nature of Bombardier’s aircraft division. Bombardier is a buy. The subordinate voting ‘B’ shares are the better choice due to their slightly higher dividend yield and liquidity.

METRO INC. $37 (Toronto symbol MRU.A; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 110.6 million; Market cap: $4.9 billion; Price-to-sales ratio: 0.4; SI Rating: Average) operates 558 food stores and 268 drugstores in Ontario and Quebec. The company earned $281.3 million in the fiscal year ended September 27, 2008, down 4.6% from $295.0 million in the prior year. Earnings per share fell 2.0%, to $2.48 from $2.53 a year earlier, on fewer shares outstanding. These figures exclude unusual items. Sales rose 0.8%, to $10.7 billion from $10.6 billion. Long-term debt of $1.0 billion is 20% of Metro’s market cap. Metro holds cash of $151.7 million or $1.37 a share. The $0.50 dividend yields 1.4%. Metro’s class ‘A’ subordinate voting shares have jumped by 40% in the past three months. However, they still trade at a reasonable 13.9 times the $2.67 a share that Metro should earn in fiscal 2009....

LOBLAW COMPANIES LTD. $37 (Toronto symbol L; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 274.2 million; Market cap: $10.1 billion; Price-to-sales ratio: 0.3; SI Rating: Above average) is Canada’s largest grocery store operator, with over 1,000 stores. The company’s plan to re-model older stores, improve its distribution systems and rejuvenate its private label products is starting to pay off. In the three months ended October 4, 2008, earnings per share rose 8.9%, to $0.61 from $0.56 a year earlier. These figures exclude unusual items. Sales grew 3.9%, to $9.5 billion from $9.1 billion. Same-store sales rose 3.0%. Long-term of $4.0 billion is equal to 40% of its market cap. Loblaw holds $690 million or $2.52 a share in cash. The stock has gained 30% in the past two months, largely due to speculation that parent company George Weston Ltd. plans to buy the 39% of the company that it does not already own....

Both Loblaw and Metro are starting to realize the benefits of their ongoing restructuring. Lower costs will help them compete with Wal-Mart, which continues to expand its grocery operations. For new buying, however, we still prefer Metro. LOBLAW COMPANIES LTD. $37 (Toronto symbol L; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 274.2 million; Market cap: $10.1 billion; Price-to-sales ratio: 0.3; SI Rating: Above average) is Canada’s largest grocery store operator, with over 1,000 stores. The company’s plan to re-model older stores, improve its distribution systems and rejuvenate its private label products is starting to pay off. In the three months ended October 4, 2008, earnings per share rose 8.9%, to $0.61 from $0.56 a year earlier. These figures exclude unusual items. Sales grew 3.9%, to $9.5 billion from $9.1 billion. Same-store sales rose 3.0%. Long-term of $4.0 billion is equal to 40% of its market cap. Loblaw holds $690 million or $2.52 a share in cash....

FINNING INTERNATIONAL INC. $14 (Toronto symbol FTT; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 171.4 million; Market cap: $2.4 billion; Price-to-sales ratio: 0.4; SI Rating: Above average) plans to cut about 5% of its workforce, as falling prices for oil and other commodities have hurt demand for its heavy construction vehicles and equipment. However, slowing sales of new equipment could spur demand for Finning’s spare parts and maintenance services, as customers delay replacing older equipment. Severance costs will cut Finning’s earnings by $10 million for the fourth quarter of 2008, and an additional $15 million in the first quarter of 2009. The plan should save the company $40 million a year, starting in 2009. Finning earned $64.8 million or $0.37 a share in the third quarter of 2008. Finning is a buy.

CANADA BREAD CO. LTD. $50 (Toronto symbol CBY; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 25.4 million; Market cap: $1.3 billion; Price-to-sales ratio: 0.8; SI Rating: Above average) is Canada’s second largest maker of fresh and frozen breads, rolls and bagels, behind Weston Bakery. It also makes specialty pastas and sauces. Main brands include Dempster, Tenderflake and Olivieri. Canada Bread continues to profit from its plan to expand its overseas operations, which now supply 25% of its total sales. It’s now one of the largest producers of bagels and specialty bakery products in the UK. Canada Bread also owns three bakery facilities in the United States. It also aims to fuel earnings with innovative new products, such as breads that help improve digestion. Premium products like this generate higher profit margins than its regular products....

SAPUTO INC. $20 (Toronto symbol SAP; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 206.8 million; Market cap: $4.1 billion; Price-to-sales ratio: 0.8; SI Rating: Average) is Canada’s largest producer of dairy products including milk, butter and cheese. Its main dairy brands include Saputo, Stella and Dairyland. Saputo also makes snack cakes and tarts. Saputo reached its current size mainly through acquisitions outside of Canada. Recent purchases include the west coast industrial cheese business of U.S.-based Land O’ Lakes Inc. for $249.2 million, and a Wisconsin-based cheese maker for $161.0 million. Saputo has also used acquisitions to expand to Argentina and Europe. Its international operations now supply about 40% of its revenue, and 30% of its earnings. Expanding through acquisitions is riskier than internal growth. Saputo cuts this risk by identifying smaller, less efficient businesses that would benefit from its economies of scale and marketing expertise....