Friday, August 12, 2016

Loblaw Companies Ltd.

Sound bite for Twitter and StockTwits is: Probably relatively expensive. On a number of tests this stock is showing that it is relatively expensive. See my spreadsheet on Loblaw Companies Ltd.

I do not own this stock of Loblaw Companies Ltd. (TSX-L, OTC-LBLCF) but I used to. I have followed this stock for some time. I got the stock from Mike Higgs' list of dividend growth companies. I owned it from 1996 to 2007. It was originally a great stock. I sold it in 2007 because it was having problems with its tech upgrade to its supply system and it did not seem that it would be fixed anytime soon.

Because of problems, Loblaw's kept their dividends flat between 2005 and 2011. Since then they have been raising the dividends again. The last dividend raise was in 2016 and it was for 4%. The 5 and 10 years dividend growth is low at 3.4% and 1.7% over the past 5 and 10 years. This is due to the number of years with flat dividends. They seem to be back to a dividend growth company.

Dividends are rather low with the current dividend being at 1.43% based on dividends of $1.04 and a stock price of $72.82. The 5 year median dividend yield is 2.08% and the historical median dividend yield is 1.20%.

I had this stock from October 1996 to April 2007. I made a total return of 10.14% per year with 8.23% per year from capital gains and 1.91% per year from dividends. If I had kept my stock I would have made 7.43% per year in capital gains and probably some 1.76% in dividends for a total return of 9.19% per year. So if I had kept it I would not have done badly. This is the thing with dividend stocks, you tend to do ok in the long term.

The outstanding shares have increased by 7.9% and 4.1% per year over the past 5 and 10 years. Shares have increased due to Share Issues, DRIP and Stock Options and shares have decreased due to Buy Backs. To me this it means I should be look at per share values. It does make a difference. For example the Revenue growth over the past 5 and 10 years is at 7.9% and 5.1% per year. The Revenue per Share growth is just 0.08% and 0.90%.

This is not full story because the growth in Revenue has recently improved. If you look at 5 year running averages, Revenue has grown at 4% per year over the past 5 and 10 years. If you look at 5 year running averages for Revenue per Share, growth is at 0.23% and 2.07% per year over the past 5 and 10 years. See my blog for more information on 5 Year Running Averages calculations.

When I look at 5 year low, median and high median Price/Earnings per Share Ratios I find them at 17.95, 20.38 and 22.81. The corresponding 10 year values are lower at 13.75, 18.36 and 16.06. The historical values are closer to the 5 year ones at 16.64, 18.75 and 20.52. The current P/E Ratio is 24.85 based on a stock price of $72.82 and 2016 EPS of $2.93. This testing does suggest that the stock price is relatively expensive.

I do wonder about the EPS estimate for 2016. We have the second quarterly report and EPS is only up around 4% if you compare the 12 month period ending at the end of last year and ending at the end of the second quarter. If you strictly look at EPS of this second quarter and last year's second quarter, EPS is up by 7.6%. Analysts say that they expect it to rise by some 94%. Also, last year analysts expected 2015 earnings of $2.67 and they came in at $1.51.

I get a Graham Price of $45.01. The 10 year low, median and high median Price/Graham Price Ratios are 1.05, 1.18 and 1.33. The current P/GP Ratio is 1.62 based on a stock price of $72.82. This testing suggests that the stock price is relatively expensive.

The 10 year Price/Book Value per Share Ratio is 1.74. The current P/B Ratio is 2.37 based on a BVPS of $30.73 and a stock price of $72.82. The current P/B Ratio is some 36% above the 10 year median P/B Ratio. This testing suggests that the stock price is relatively expensive.

The historical median dividend yield is 1.20%. The current dividend yield at 1.43% is some 19% higher. This would suggest that on an historical basis the stock price is relatively cheap. My records go back some 26 years to 1990.

However, if you look at the median dividend yield over the past 5 years, it is higher at 2.08% and the current rate of 1.43% is some 31% lower. The 10 year median dividend yield is even higher at 2.12% and this is some 33% higher than the current dividend yield.

This testing could suggest that the stock has been relatively lower in the past 5 and 10 years that it has been historically. However, what has happened is that you have higher dividend yields because the company has been paying out a larger proportion of earnings in the past 10 years than historically. The 5 year median Dividend Payout Ratio for EPS in 1995 was 20%. The 5 year DPR for EPS in 2015 was 52%. The historical median DPR is 20.8%. So yield has been climbing at the expense of a higher payout ratio.

When I look at analysts' recommendations I find Strong Buy, Buy and Hold recommendations. Most of the recommendations are a Buy and the consensus recommendation is a Buy. The 12 month stock price is $79.23. This implies a total return of 10.23% with 1.43% from dividends and 8.80% from capital gains. This is based on a current stock price of $72.82.

Hollie Shaw recently wrote in the Financial Post that Loblaw's cutting prices in top-tier stores is starting to pay off. Cameron Conway on Seeking Alpha does an interesting analysis of this company. Doug Wharley on Aug 1, 2016 on the Cerba Gem talks about analysts raising estimates for this company.

I will have only one entry for this stock this year. However, I did a more complete report on this company in 2015 and you can see those reports here and here.

The last stock I wrote about was about was DirectCash Payments Inc. (TSX-DCI, OTC-DCTFF)... learn more . The next stock I will write about will be Newfoundland Capital Corp. (TSX-NCC, OTC-none)... learn more on Monday, August 15, 2016 around 5 pm.

Loblaw Companies Limited, a subsidiary of George Weston Limited, is Canada's largest food retailer and a leading provider of drugstore, general merchandise and financial products and services. Loblaw offers Canada's strongest control (private) label program, including the unique President's Choice, no name and Joe Fresh brands. In addition, the Company makes available to consumers President's Choice financial services and offers the PC point loyalty program. Its web site is here Loblaw Companies Ltd.

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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits.

No comments:

Post a Comment