Friday, January 3, 2014

Metro Inc. 2

I own this stock of Metro Inc. (TSX-MRU, OTC-MTRAF). I am starting off the year with a dividend growth consumer stock. I was following this stock before I bought it because it was on Mike Higgs' Canadian Dividend Growth stock list and on the other dividend lists that I was following.

When I look at insider trading report, I find some $15.9M of insider selling and $15.7M of net insider selling. There is some $0.2M of insider buying. The selling was all in the first part of 2013. There are a lot of options outstanding, and there are also option like vehicles called Performance Share Unit and Deferred Stock Units. There is some insider ownership with the CEO having stock worth around $9.7M and the Chairman with stocks worth around $24.5M.

The 5 year low, median and high median Price/Earnings Ratios are 9.13, 10.76 and 12.43. The current P/E Ratio is 12.43 based on 2014 Earnings of $5.22 and a stock price of $64.90. This stock price tests says that the stock price is relatively rather high.

I get a Graham price of $59.97. The 10 year low, median and high median Price/Graham Price Ratios are 0.82, 0.98 and 1.09. The current P/GP Ratio is $1.08 based on a stock price of $64.90. This stock test says that the stock price is relatively rather high.

The 10 year median Price/Book Value per Share Ratio is 2.09. The current P/B Ratio is 2.12 based on a stock price of $64.90. The current one is only 1% higher than the 10 year P/B Ratio and this stock test implies that the stock price is relatively reasonable.

If you look at the dividend yield the 5 year median dividend yield is 1.60% and the current yield is some 3.5% lower at 1.54%. Although you like the current dividend yield is be higher than the 5 year median dividend yield, it is quite close and this stock price test says that the stock price is relatively reasonable.

The reason for the discrepancy in the stock tests is that analysts expect earnings to be down by 30% in 2014. They expected a much lower EPS for 2013 but 2013 turned out to be a very good earnings year for this company. Of course, the reason for the good EPS is the sale of half their holdings in Alimentation Couche-Tard Inc. The past performance of a stock does not does not tell you about the future performance. However, with the dividend yield test, you are dealing with actual not estimated values.

When I look at analysts' recommendations, I find Strong Buy, Buy, Hold and Underperform recommendations. The consensus recommendation would be a Hold. The 12 month consensus stock price is $66.70. This implies total return of 4.31% with 1.54 from dividends and 2.77% from capital gains.

An article in the financial post says Metro is the number 3 grocery chain and wonders if it will buy out Overwaitea or Jean Coutu. An article in financial post talks about how Metro is reorganizing its Ontario stores to meet the competition. A G&M article by John Reese talks about 4 Canadian stocks Warren Buffet would love and includes Metro.

The G&M number cruncher by Alvin Lau looked for companies with consistently strong returns on invested capital and came up with 10 companies, including Metro. Another G&M number cruncher by Michael Bowman looked for profit generators and come up with 23 stocks, including Metro.

The Blogger Investing Currently did an analysis of this stock in June of 2013. He thinks that Metro's growth will level off or flatten. Also, Metro will sold almost half its stake in Alimentation Couche-Tard Inc. in January 2013.

By the dividend yield test the stock is from reasonable to cheap. However, it is a retail stock and there is some shakeup going on in this section, so if you have this stock, you should be keeping an eye on it. If you have had this stock in your trading account for some time, as I have had, there is a reluctance to sell because of capital gain tax. See my spreadsheet at mru.htm.

This is the second of two parts. The first part was posted on Thursday, January 2, 2013 and is available here.

Metro is a leader in the food and pharmaceutical sectors. It operates a network of close to 600 food stores under the banners Metro, Metro Plus, Super C, A & P, Dominion, Loeb and Food Basics. It has 250 pharmacies under the banners Brunet, Clini Plus, The Pharmacy and Drug Basics. Metro's operations are concentrated in Quebec and Ontario. Its web site is here Metro.

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.

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