Friday, June 22, 2012

Reitmans (Canada) Ltd. 2

I do not own this stock (TSX-RET.A). I have been following this stock for some time. It is one that I picked up off of a list of good companies to invest in by The Investment Reporter. This is a MPL publication. See their site.

When I look at insider trading I find $4.4M of insider selling and net insider selling of $4.4M. There is a minimal amount of insider buying. Most of the insider selling was by officers and directors and they seem to be cashing in stock options. There was also some insider selling by the CFO and this also seemed to be cashing in stock options. This mostly occurred in January 2012 and before. There were also some stock options for May and they seemed to be retained.

Most officers and the CFO have more options than shares. Some directors also have more options than shares. I looked at the two biggest insider holds, the CEO and an Officer (Stephen Reitman) and they each hold around 5% of the outstanding shares. They have both common and Class A non-voting shares. Sherlex Investments Inc. (Reitman family) owns 50% of the common shares and 12.5% of outstanding shares. The Reitman family does control the company.

There are some 48 institutions that hold 42% of the outstanding shares of this company. Over the past 3 months they have increased their investment in this company by 4%. This is a positive.

The 5 year low, median and high Price/Earnings Ratios are 9.76, 12.97 and 16.57. The current P/E Ratio of 13.97 is close to the median so it points to the current stock price of $12.43 as higher than the median, but reasonable.

I get a Graham Price of $12.10. The 10 year low, median and high Price/Graham Price Ratios are 0.79, 1.06 and 1.38. The current P/GP is 1.03 and so a bit below the median and points to a current reasonable stock price.

The 10 year median Price/Book Value Ratio is 2.29. The current P/B Ratio is 1.70 and only 74% of the 10 year median. This low P/B Ratio points to a very good current stock price.

The 5 year median Dividend Yield is 5% and the current dividend yield is 6.44%. The current year is some 28% higher than the 5 year median and also points to a good current stock price. The 10 year median high dividend yield is 3.78%. Recent dividend yields have been higher than usual lately, especially since 2009.

When I look at analysts’ recommendations I find Buy and Hold recommendations. There are mostly hold recommendations and the consensus recommendation would be a Hold. With the Hold recommendation the 12 month stock price is $14.30. This implies a 21.48% total return over the next 12 months. Analysts all seem to mention that retail is a tough place to be currently. The dividend is thought to be very good.

There is an article in G&M about how Reitmans will be challenged to keep growing. See G&M. These head winds include competition, high cotton prices and Canadians with less money to spend.

Analysts think that the dividend is safe. My dividend records go back to 1995. They have not lowered dividends in the past, but have kept them steady for a number of years at a time. Their balance sheet is strong, so they have the ability to weather any coming bad times.

I think that we are probably heading into another recession and this will cause problems for retailers. The dividend yield is very good on this stock and you would be paid some 6.4% to hold this stock. However, the price of the stock is reasonable rather than cheap. If we head into another bear market and recession it could probably be picked up cheaper in the future, but who knows for sure. It is a calculated risk.

Reitmans (Canada) Limited operates a network of clothing stores specializing in women's & men's fashions and accessories. The company operates stores under the names Reitmans, Smart Set, Pennington Superstores, RW & Co., Thyme Maternity, Addition-Elle, and Cassis. Its web site is here Reitmans. See my spreadsheet at ret.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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