The Motley Fool

Contrarian Investors: Is it Time to Load Up on Empire Company Limited?

Empire Company Limited (TSX:EMP.A) rallied 12% from its $15 low in December, and it looks like the stock has hit a turning point with a new CEO at the helm. The stock has been oversold for a long time, and it appears that downside is limited at current levels. The downward momentum is still strong, but shares are just too cheap to ignore at current levels.

The company’s complex organizational structure is in disarray right now, and new CEO Michael Medline won’t be able to fix the problems overnight. In fact, it could take a few years before a real change is reflected in a quarterly report.

Empire overpaid for an acquisition in western Canada right before the Canadian economy went off a cliff. There’s no question that there’s no room for error in the grocery business. Margins are razor thin, and if any problems arise, the stock could go tumbling in a hurry.

But the grocery sector isn’t completely horrible. It’s actually a double-edged sword. The defensive nature of the grocery business allows for companies to do well during times of recession. We all need to eat, even if the economy is crumbling.

Can Michael Medline bring Empire out of the gutter?

Many pundits have been criticizing Canadian Tire Corporation‘s ex-CEO Medline due to his lack of experience in the grocery business. Sure, he’s had success with a Canadian retailer in Canadian Tire, but what can he offer a struggling grocery business?

I believe Medline has the tools needed to make Empire great again. He knows the ins and the outs of the Canadian retail market better than most.

The organizational structure is complicated, and it’s clearly inefficient right now. Medline isn’t a miracle worker, but I think he can slowly get things back on track by driving operational efficiencies in each part of the business. It’s not an impossible task, and with someone as experienced as Medline, I’d say Empire will be in pretty good shape a few years down the road. We’ll look back on this huge dip and tell ourselves what a huge buying opportunity it was.


The stock currently trades at a 1.3 price-to-book multiple, a 0.2 price-to-sales multiple, and a 5.5 price-to-cash flow multiple. The dividend yield is at a generous 2.44%, which is substantially higher than the company’s five-year historical average yield of 1.6%. The dividend is sustainable at current levels and should be treated as a bonus by investors looking for a rebound.

The stock is cheap, and it looks ripe for a rebound, but don’t expect this rebound to be overnight. Buy the stock and collect the bountiful dividend while you wait for shares to jump as the company turns around.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share. Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune. Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

Fool contributor Joey Frenette has no position in any stocks mentioned.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.