Jean Coutu Group 2

I am continuing my review of this stock (TSX-PJC.A) which I once owned. I initially bought it in March 2000 and bought some more in August 2004. I sold off my shares in 2007. Most of these shares were sold because I wanted to buy Saputo, which I liked better. The company was also in some difficulty. I made a return of 7.4% per year, including dividends.

When I look at the Insider Buying and Insider Selling I find two things. First, there has been a small bit of Insider Selling by officers of the company. This is a very small amount, so it really tells us nothing. Next, recently some of the officers have been retaining their options rather than selling them as soon as they could. This is a good sign.

When I look at the P/E Ratio 5 year average low and 5 year average high, I find them both high. The 5 year average low is 22.6 and the 5 year average high is 37.8. When the 5 year average low is over 22, it is not hard to beat. I get a current P/E ratio of 14. It is not low, but it is not a bad ratio. The reason that the P/E ratios are so high is because Jean Coutu Group is thought of as a growth company. Sites that give P/E ratios based on last 12 months earnings show no P/E ratio as the last 12 months earnings are negative.

When I look at the Price/Book Value, you do not get a good story. The Book Value has come down a lot recently, so the current P/BV ratio is some 2.6 times the long term average. Also, using the most recent quarterly statement of September 2009, I get a P/BV of 4.6. This is high. When I look at the Dividend yield, I find the current yield of 1.9% above the 5 year average of 1.1%. However, this is a good yield for this stock in any event as the Dividend Yield has often been below 1% and has hovered at .5% to .6%.

The last thing to look at is the Graham Price. This price is currently at $5.65. It has come down recently as both the earnings and book value has come down. The current stock price is more than 40% above this figure. So, it does not appear that the current price is good. The thing to mention is that mostly the stock price has been above the Graham Price. The 10 year average is for the Stock Price to be about 45% above the Graham Price.

There are a surprising number of analysts following this stock. All the recommendations are either a Buy or a Hold, plus I found one Strong Buy. The consensus recommendation is a Buy. (See my site for information on analyst ratings.) They point out that the reason for the earnings loses was because of write-offs connected with Rite Aid. The write-offs for this investment are over. It is also pointed out that the company still had good cash flows during this period, as they were making money. It is also pointed out that Jean Coutu continues to earning good money on its Canadian stores. It is felt by many that this company will make good money going forward.

At the moment, I am not investing and even if I was, I wonder if this would be a good investment. It would not have been much fun investing in this company over the last 5 years. From my perspective, the good thing is that they did raise their dividends in 2009 by 12.5% and there were a lot of companies that did not raise their dividends in 2009. The 10 year average yearly increase in Dividends of 12% is good. Since this is largely a family owned business, will they make another mistake in investments as they did in investing in Rite Aid.

The Jean Coutu Group operates a network of 343 franchised drugstores in Canada located in the provinces of Québec, New Brunswick and Ontario (under the banners of PJC Jean Coutu, PJC Clinique and PJC Santé Beauté). The Company also holds a significant interest in Rite Aid Corporation (‘‘Rite Aid’’), one of the United States’ leading drugstore chains with approximately 5,000 drugstores in 31 states and the District of Columbia. Controlling shareholder is Jean Coutu. He has 55%, but has 92.5% voting control. Its web site is www.jeancoutu.com. See my spreadsheet at www.spbrunner.com/stocks/pjc.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website at www.spbrunner.com/stocks.html for a list of the stocks for which I have put up spreadsheets. Also, look at other investing notes on my website at www.spbrunner.com/investing.html.