The Jean Coutu Group Inc. (TSX: PJC.A), one of the largest pharmacy chains in Canada, released second-quarter earnings results on October 8, and its stock reacted by rallying 2.38% higher. The stock has now returned more than 35% year to date, far outperforming the TSX Composite Index, which has returned just over 7.5%. Let’s take a look at the four most important takeaways from the report and decide if this could be the starting point of a sustained rally higher.
(All results are reported in Canadian dollars.)
1. The results satisfied expectations
Here is a chart of what Jean Coutu achieved in the second quarter of fiscal 2015 versus what analysts had expected and its results in the same quarter a year ago.
|Earnings Per Share||$0.28||$0.28||$0.24|
|Revenue||$674.4 million||$664.8 million||$653.8 million|
Source: Financial Times.
2. Same-store sales rose significantly
Jean Coutu experienced significant same-store sales growth during the quarter. Here is a chart depicting this performance.
|Same-Store Sales||Percentage Growth|
Source: The Jean Coutu Group
3. Operating profit increased and the operating margin expanded
Operating profit increased 5.6% to $73.1 million and the operating margin expanded 20 basis points to 10.8% in the second quarter. This growth and expansion is very impressive given the fact that generic drugs, which are much cheaper than brand name drugs, represented 68.1% of sales compared to 67.2% of sales in the year-ago quarter. Two other factors contributing to this growth and expansion were general and operating expenses decreasing 0.5% and depreciation and amortization decreasing 1.3% year over year.
4. Shares repurchases exceeded $50 million
During the second quarter, Jean Coutu repurchased 2,574,100 shares of its class A shares at an average price of $21.62 per share for a total cost of $55.6 million including transaction-related expenses. In its first-quarter report, the company announced its intention to repurchase 8,190,000 of its outstanding class A shares, so this was a great start to the plan.
Should you initiate a long-term position today?
Jean Coutu’s strong second-quarter results sent its stock more than 2.3% higher on the day of the release and I think it could continue to rally, setting new all-time highs in the process. Foolish investors should keep a close eye on this one and consider initiating long-term positions on any weakness provided by the market.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Joseph Solitro has no position in any stocks mentioned.