Friday, January 21, 2011

Metro Inc 2

This annual report is in on this stock (TSX-MRU.A) that I own. The financial year for this stock ends in September each year. I have done well with this stock, earning total return of 17.7% per year on the stock I bought in 2004. I have had this stock for 7 years and I am making a 3.9% yield on my original investment; even though the 5 year average yield is just 1.5%. The company showed faith in this company by increasing the dividends by almost 24% in the financial year ending September 2010.

When I look at the insider trading report, I find that over the past year there has been some $7.8M of insider selling. $2M of this was by the CEO and the rest by officers of the company. Everyone, but the directors have far more options than shares. The company is also buying back shares on the open market to cancel. The main problem with this is that it often just covers new options. However, I must admit that the number of shares over the past few years has been declining by 2-3% per year.

The 5 year Price/Earnings Ratio median low is 9 and 5 year P/E Ratio median high is 13.7. So, the current P/E ratio that I get of 11 shows a reasonable stock price. Sites that get a current P/E based on last 12 months earnings get one of 11.7. I get a current Graham Price of $45.05. The current stock price of $43.91 is 2.5% lower. It is always a good sign if the stock price is below the current Graham price. On average, this stock’s price is 8% higher than the Graham Price.

I get a current Price/Book Value ratio of 1.89 and a 10 year average P/B Ratio of 2.12. The current P/B Ratio is therefore some 89% of the 10 year average. The current P/B Ratio is below the 10 year average and this point also to a reasonable stock price. The last thing is the dividend yield. The current one at 1.55% is higher than the 5 year average of 1.49%. Not by much, but it is higher, so this also points to a reasonable current stock price.

When I look at analysts’ recommendations, I find Strong Buy, Buy and Hold recommendations. There are just as many Hold recommendations as Buy recommendations. The consensus recommendation would be a Buy. (See my site for information on analyst ratings.) Analysts seem worried about competition from Loblaw and Sobeys and feel that this might limit the growth in earnings for Metro. The difference in a 12 month stock price between the Holds and the Buys is not much with the Holds expecting a $48 stock price and the Buys a $50 stock price.

This would be a good stock to buy for increasing dividend income and capital gain. This would be a good stock if you do not need the yield. That is if you are in the process of building your portfolio or have enough high yield stocks to balance your portfolio with a low yield stock. Metro has consistently raised their dividend every year and they are on the dividend lists that I follow of Dividend Achievers and Dividend Aristocrats (see indices).

Metro is a leader in the food and pharmaceutical sectors. It operates a network of close to 600 food stores under the banners Metro, Metro Plus, Super C, A & P, Dominion, Loeb and Food Basics. It has 250 pharmacies under the banners Brunet, Clini Plus, The Pharmacy and Drug Basics. Metro's operations are concentrated in Quebec and Ontario. Its web site is here Metro. See my spreadsheet at mru.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 for stocks followed and investment notes. Follow me on twitter.

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