Friday, June 17, 2011

Canadian Tire Corp 2

I own this stock (TSX-CTC.A). I first bought this stock in 2000. I bought more in 2009 and 2010. I have made a return of 11.2% per year on this stock. The dividend portion of this return would be around 1.5% per year. Realistic long term return on a retail stock is 8 to 9%, with dividends at 1 to 1.5%. Yields are never going to get very high on this stock. In the past, dividend yield on this stock has basically ranged from .85% to 2.50%. They have mostly been around 1% to 1.5%.

When I look at the insider trading report, I find that there is some $16.7M of insider selling and some $3.4M of insider buying. It all seems to be done by a couple of officers who own a substantial amount of Class A shares. This buying and selling represents a very small portion of what they hold (i.e. way under 1%). I do not know what to make of this, but it tells us nothing.

Both the CEO and CFO own more options that shares. This is also true of a lot, but not all, of the officers of this company. It is also a positive that the company has raised their dividend by 31%. Management obviously has faith in the future earnings of this company.

Almost 7% of the shares are owned by 8 institutions. There has been substantial amount of institutional buying of this stock over the last 3 months. They have increased their investment in this company by over 290% and a net of $11M. It is a positive that institutional investment in this stock has increased over the past 3 month. It is also a positive that the company has raised their dividend by 31%.

The 5 year median Price/Earnings Ratios have a low of 9.4 and 15.7. The current one of 11.64 is about average. I get a 10 year Price/Book Value Ratio of 1.35 and a current P/B Ratio 1.27. To show a great stock price, you would want the current ratio to be 80% of the long term ratio. However, the current ratio is lower and is some 93% of the long term ratio. This would show a reasonable current price.

I get a Graham Price of $77.02 and a current stock price of $62.39. The different is some 19%. Over the last 10 years the median difference between the Graham Price and the stock price has been 19%. So this also shows a current reasonable price.

The 5 year median dividend yield is 1.39% and the current dividend yield is 1.76%. This shows a very good current stock price.

When I look at analysts’ recommendations, I find Strong Buy, Buy, Hold and Underperform. The consensus recommendations would be Buy. However, I should point out that there are a lot of Hold recommendations. Basically, a number of analysts do not expect the stock price to grow much further within the next 12 months. Hold recommendations come with stock price of around $66.00. Some analysts with a hold felt that the current price is too high and a better purchase price would be high $50s.

A number of analysts mentioned the purchase of Forzani and feel this is good. This company is going into selling Major Appliances and there is some concern about this. Analyst also worry this might not work out because Major Appliance selling is a crowded market. Another thing is American stores like Target coming to Canadian. Another analyst mentioned that the stock has basically gone sideways since mid-2009.

This stock has recently been discussed in the Cdn Money Forum. There is a discussion on the company going into selling large appliances at Dominion Lending. There was an article on how the retail stock rose after Cdn Tire bought Forzani by the Executive Investment site.

There is talk that this company will have head winds going forward. Others feel that purchasing this stock is a way to participate in the economic recovery in retail. For me, I am pleased with the overall performance of this stock. The dividend yield is low, but the increases are decent, although they are erratic. The company will only increase dividends when they feel they can afford to.

Canadian Tire Corp engages in retail sales, financial services and petroleum sales. They own Canadian Tire Store, Gas Outlets, Parts Source Stores and Mark's Work Warehouse. The Canadian Tire stores offer a unique range of automotive, sports and leisure and home products. The company is controlled by the Billes family who own most of the voting shares. Its web site is here Canadian Tire. See my spreadsheet at ctc.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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