I do not own this stock (TSX-PJC.A), but I used to. I bought this stock in 2000 and 2004 and sold in 2007. I made 7.4% per year. The dividend portion of this return would be 1.1% per year. The thing was that they had bought some drug stores in the US and they were not doing well. This was the Eckerd drug stores they bought in 2004. In June of 2007 they sold these stores of Rite Aid in return for a share in Rite Aid.
When I sold in 2007, I felt that the company would not be doing anything for a while. They hit their peak in 2006 and have never recovered. Stock price is back to where it was in 2001 and that was a down year for the company and for the market. When I bought the stock, I bought it was a dividend paying growth stock. The dividend yield was below 1%, but it was increasing fast.
If you had held this stock over the past 5 and 10 years, you would have lost money. It is down about 2% per year including the dividend which was running around 1.5% per year. Since median price in 2005, this stock has lost 26% of its value over these 7 years.
They had stopped dividend increases in 2005 and 2006, but then started to raise the dividends again and have a good record of dividend increases with the 5 and 10 year growth in dividends at 14% and 11% per year, respectively. This is a consumer stock and lots of them have very low dividend yields, very low Dividend Payout Ratios and high dividend increase rates.
When I first bought this stock in 2000, the DPRs were 14% for earnings and 9% for cash flow. These DPRs were in the 30% range for earnings and 25% for range for cash flow for the 2011 financial year ending in February 2011. They are expected to retreat a bit in 2012 financial year to around 27% for earnings and 21% for cash flow. But as you can see, the increases come with higher DPRs. Not what you want to see.
Book Value has suffered greatly in recent years with Book Value being down by 18% and 4% per year over the past 5 and 10 years. One seemly bright point is the increase in earnings of 12% and 5% over the past 5 and 10 years. However, the 5 years measure is from an earnings low point, so is not as great as it initially appear s to be. Earnings are back to where they were in 2004.
Revenue has changed form from sales to Franchise revenue, so by this later measure it is up by around 6% per year over the past 5 years. Revenue is shown as being down on my spreadsheet, because you cannot compare sales figures to franchise figures as they are very different sorts of revenue.
When I look at the insider trading report, I find minimal insider buying and minimal insider selling, with a net of insider selling. Lots of insiders have options of different sorts. Jean Coutu pretty much owns all the B shares which are multiple voting shares. He has a lot of money invested in the company, around $1.5B.
When you look at analysts’ recommendations, there are Strong Buy, Buy and Hold ones. There are a lot of Hold recommendations and the consensus would be a Hold. There are no sell recommendations, but there are some Don’t Buy recommendations, which really do not fit into the current analysts’ recommendation format.
No one expects significant gains in stock price within the next 12 months and dividend is still low at 1.8%. A number of analysts do not like the fact that they still have an interest in Rite Aid. The buy recommendations tend to say how good consumer stable stocks are going to do over the next while and therefore company is a buy. (However, they do not say anything positive about this particular company.)
The 5 year median low and high Price/Earnings Ratios are 10.62 and 13.16, so the current P/E of 15.1 looks high. Since Book Value has been going down, this current Price/Book Value Ratio is way about the 10 year median P/B Ratio. The dividend yield at 1.81 is below the 5 year median dividend yield of 1.88. These tests point to rather high current stock price.
The only test to point to a reasonable price is the Graham Price. I get a Graham Price of $7.44 and the current stock price of $13.27 is some 43% higher. The median difference between the Graham price and stock price is the stock price being some 87% higher.
Personally, I do think that consumer stable stocks should start of do better, but I also think that there are better ones to invest in. They really haven’t recovered from their Eckerd adventure in the US.
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 here Jean Coutu. See my spreadsheet at 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 for stocks followed and investment notes. Follow me on twitter.
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