Jean Coutu Group Inc 2

On my other blog I am today writing about our debt ...continue...

I do not own this stock of Jean Coutu Group Inc (TSX-PJC.A, OTC-JCOUF), but I used to. I bought this stock first in 2000 for my RRSP account. In 2004, I bought some for my trading account. In 2007, I was looking to buy a condo and so had to raise some money for a mortgage. I sold this stock in both accounts. It was not doing well. I started to follow this stock as it was on Mike Higgs' list of dividend growth stocks. It was also on Investment Reporter's stock list.

When I look at insider trading I find $6.6M of insider selling and net insider selling of $6.5M. The insider selling is by officers of the company only. The company has also been buying back Class A Shares. Not only is there options, but there are other option like vehicles called Share Rights (two types) and Performance Share Units. Jean Coutu owns all the Class B multiple voting shares.

The CEO has shares no shares and has options worth $13.8M. The CFO has shares worth $0.5M and has options worth $5.6M. An officer has no shares and has options worth $1M. Most directors have few shares and have few options. A couple of directors related to Jean Coutu have Class A shares worth $192m. This is just to give you an idea on insider share ownership and option values.

The 5 year low, median and high median Price/Earnings Ratios are 9.80, 11.42 and 13.05. The current P/E Ratio is 18.61 based on next year's EPS of $1.04 and a stock price of $19.35. This says that the current price is high.

I get a Graham Price of $11.79. The 10 year low, median and high median Price/Graham Price Ratios are 1.29, 1.60 and 1.89. The current P/GP Ratio is 1.64. This says that the stock price is relatively reasonable.

The 10 year Price/Book Value per Share Ratio is 3.17. The current P/B Ratio is 3.26, a value that is 3% higher than the 10 year ratio and this suggests that the stock price is reasonable.

I get a 5 year median dividend yield of 2.29%. The current yield is 1.76%. The current yield is 24% lower than the 5 year median dividend yield. What you want is a current yield higher than the 5 year median. The 10 year median dividend yield of 1.55% is lower than the current one by 13%. The current stock price is probably relatively reasonable. There is not usually such a big difference between the 5 year and 10 year median dividend yields.

When I look at the analysts' recommendations, I get Buy, Hold and Underperform recommendations. The consensus recommendation is a Hold. The 12 month consensus stock price is $18.10. This implies a negative total return of 4.7% with 1.76% from dividends and 6.46% capital loss.

Analysts think that this is a well-run business, but wonder if there is any more acquisitions for this company. It has grown in the past by acquisitions and they have not always been successful in this. They have a significant cash balance which could soon be in the neighborhood of $300M and people are wondering what they will do with it. They sold their Rite Aid Shares (NYSE-RAD). See news item in Street Insider.

The Montreal Gazette talks about their new big distribution center and that it could support a Canadian expansion for Jean Coutu Group. There was recently a jump in the shares of this company and the financial post think that it may be the next takeover target.

The current stock price has jumped in the last few days to one over $19. The current price seems reasonable, but if it continues to rise, it may not stay reasonable. See my spreadsheet at pjc.htm.

This is the second of two parts. The first part was posted on Tuesday, July 16th, 2013 and is available here.

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). Controlling shareholder is Jean Coutu. He has 55%, but has 92.5% voting control. Its web site is here Jean Coutu.

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 or StockTwits.