Tuesday, February 22, 2011

Loblaw Companies Ltd

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. Probably about 1 to 2% of this was dividends and the rest capital gain.

I sold this stock on it way down in 2007 and before it crashed later in that year. I sold some at the beginning of 2007 when it was having trouble and sold off the rest by mid-year. I was probably a bit slow to sell as it had been a great stock and I thought it would pull itself out of its troubles. However, in 2007, I was skeptical that it would recovery anytime soon. This stock did start to cover in 2008, but it has been very slow and no one over the past 5 and 10 years has made any money on this stock.

Average dividend returns over the last 5 years have been around 2.2%. This means that over the last 10 years, you might have broken even in the investment. This is not a great showing. Over the past 5 years, you would have lost money, even when including the dividends, of around 4 to 5% per year. However, I am still tracking this stock, as it might be a good one again in the future.

For this stock, all the figures of growth over the past 10 years have been better than over the last 5 years. For example, growth in revenue has been at 3% per year over the past 5 years and at 5% per year over the past 10 years. Cash flow, net of changes in non-working items, has been at -4.4% per year over the past 5 years, but at a respectable, if not great, 7% per year over the past 10 years. And, book value per share has grown only at 2.5% per year over the past 5 year, but at 8% per year over the past 10 years.

When I look at Return on Equity, the 5 year average is ok at 7%. The ROE has been increasing each year since it hit a low in 2006. For the year ending in 2009, ROE was 10.5%. For the last 12 months, the ROE is at 10.3%. This is a good ROE.

The debt ratios are also ok. The current Liquidity ratio is at 1.20 and is a little low, but slightly higher than the 5 year average of 1.19. The current Asset/Liability ratio at 1.77 is quite good and it is also better than the 5 year average of 1.71. The current Leverage Ratio at 2.30 is ok and better than the 5 year average of 2.41. What you want to see is the Liquidity Ratio and A/L Ratio at 1.50 and above. For the Leverage Ratio, the lower the better and a ratio of 2.30 is fine.

Tomorrow, I will look at what my spreadsheet says about the current stock price and how analysts are saying about this stock.

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.

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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