Wednesday, February 23, 2011

Loblaw Companies Ltd 2

This is a company (TSX-L) that I track but currently do not own. I bought some in 1996 and again in 1998. I sold in 2007 because this company was in trouble. I make a return on this stock, over this period of 10% per year, including dividends.

When I look at the insider trading report, I find insider buy of $1.5M over the past year. The buying was by directors of the company. There was no insider selling. Also, stock options seem mainly to be kept recently. These are both positive points. Everyone, but the directors seem to have lots more stock options that shares. George Weston Company Limited owns about 60% of this company.

The 5 year median low Price/Earning Ratio is 12.6 and the 5 year median high P/E Ratio is 16.8. The current P/E ratio of 14 is slightly below the P/E Ratio average of 14.7. This shows the price to be reasonable. I get a current Graham Price of $39.48 and the current stock price of $40.09 is only 1.5% higher. This shows a reasonable price. The other thing is the price is good on a relative basis also; as on average, the stock price is 70% above the Graham Price.

The 10 year average Price/Book Value Ratio is 2.95 and the current P/B Ratio is 60% lower at 1.66. A good stock price is when the current P/B Ratio is 20% lower than the 10 year average. So, this also shows a good current price.

The last thing to look at is the yield. The current yield is 2.1% and the 5 year average is 2.2%. Problem with this stock is that the dividends have not been raised since 2006. I do not see them raising the dividend in 2011. When they were increasing the dividends, the Dividend/Earnings Payout Ratio was around 20%. The Dividend/Cash Flow Payout Ratio was around 14%. The expected D/E Payout Ratio is expected to be around 29% in 2011 and the expected D/CF Payout Ratio around 16%.

Of course, these payout ratios were much higher from 2006 to 2009. That is why you have to look at what the company was doing prior to the current problems. When dividends were being raised on an annual basis, usually around 20% per year, the dividend yield was 1% or less. The current dividend yield is at 2.2%.
The company has not given any indication that dividends would be raised anytime soon.

The analysts’ recommendations cover ones from Strong Buy, Buy, Hold, Underperform and Sell. The consensus would be a Buy. (See my site for information on analyst ratings.) Most recommendations are Strong Buy, Buy and Hold. The expected 12 month share price between Buy and Strong Buy go from $45 to $53.

Many analysts think that this company has good potential, is on the way to a long term recovery, and therefore is a good buy. One analyst points out that over the past 6 months, the stock price has hit lower lows and lower highs. If you look at a chart, you can see this. If you follow charting, this is not good. Some analysts are concerned about Loblaw’s ability to compete against Wal-Mart. There is certainly a wide range of opinion on this stock. There are lots of Strong Buys and Buys, but sometimes the majority can be wrong.

Loblaw, a subsidiary of George Weston Limited, is Canada’s largest food distributor and a leading provider of general merchandise, drugstore and financial products and services. Corporate owned store banners include Atlantic Superstore, Dominion(1) (in Newfoundland and Labrador only), Extra Foods, Loblaw, Maxi, Maxi & Cie, Provigo, the Real Canadian Superstore and Zehrs and wholesale outlets operating as Cash & Carry, Presto and The Real Canadian Wholesale Club. The Company’s franchised and associated stores operate under the trade names Atlantic SaveEasy, Fortinos, no frills, SuperValu, Valu-mart and Your Independent Grocer. W. Galen Weston and George Weston Ltd own 63% of this company. Its web site is here Loblaw. See my spreadsheet at lob.htm.

I forgot to mention that I replaced the remaining Pareto (TSX-PTO) stock in my trading account with Goodfellow Inc (TSX-GDL). I have more flexibility in my trading account. So, I bought Goodfellow now and will get this money back when Pareto is bought out at the end of March.

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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