Why Loblaw Companies Limited Is up Over 1%

Loblaw Companies Limited (TSX:L) is up over 1% following its Q3 earnings release. Should you buy now? Let’s find out.

| More on:
The Motley Fool

Loblaw Companies Limited (TSX:L), Canada’s food and pharmacy leader, announced its third-quarter earnings results yesterday morning, and its stock responded by rising over 1% in early trading. Let’s break down the quarterly results and the fundamentals of its stock to determine if we should consider initiating long-term positions today.

A solid quarter of top- and bottom-line growth

Here’s a quick breakdown of 12 of the most notable statistics from Loblaw’s 16-week period ended October 7, 2017 compared with its 16-week period ended October 8, 2016:

Metric Q3 2017 Q3 2016 Change
Revenue $14,192 million $14,143 million 0.3%
Operating income $1,236 million $690 million 79.1%
Adjusted EBITDA $1,229 million $1,143 million 7.5%
Adjusted EBITDA margin 8.7% 8.1% 60 basis points
Adjusted net earnings $549 million $512 million 7.2%
Adjusted earnings per share $1.39 $1.26 10.3%
Operating cash flow $872 million $1,112 million (21.6%)
Free cash flow $340 million $564 million (39.7%)
Number of corporate stores 565 566 (0.2%)
Number of franchise stores 531 525 1.1%
Number of Associate-owned drug stores 1,333 1,324 0.7%
Total number of stores 2,429 2,415 0.6%

What should you do now? 

It was a solid quarter overall for Loblaw, and it posted good results for the first nine months of the year, with its revenue up 1.2% to $35.67 billion, its adjusted EBITDA up 6.3% to $3.08 billion, and its adjusted diluted EPS up 10.4% to $3.08 compared with the year-ago period. That being said, I think the market has responded correctly by sending its stock higher, and I think it represents a great long-term investment opportunity for two fundamental reasons.

First, it’s still undervalued. Even after the slight pop in its stock, Loblaw’s stock still trades at just 15.9 times fiscal 2017’s estimated EPS of $4.41 and only 15.3 times fiscal 2018’s estimated EPS of $4.59, both of which are inexpensive given its current earnings-growth rate and its estimated 8.3% long-term earnings-growth rate.

Second, it’s an up-and-coming dividend-growth star. Loblaw currently pays a quarterly dividend of $0.27 per share, equal to $1.08 per share on an annualized basis, which gives its stock a yield of about 1.5%. A 1.5% yield is far from high, but it’s crucial to note that the company has raised its annual dividend payment each of the last five years, and its 4% hike in May has it on track for 2017 to mark the sixth consecutive year with an increase.

Loblaw is up more than 12% since I first recommended it in December 2014, and I think it still represents a great investment opportunity for the long term, so take a closer look and consider adding it to your portfolio today.

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.

More on Dividend Stocks

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »

sale discount best price
Dividend Stocks

1 Dividend Stock Down 11 Percent to Buy Right Now

Do you want a great dividend stock down 11% that can provide years of growth potential? Here's one heavily discounted…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Are you looking for dividend stocks to buy right now? Here are two top picks!

Read more »

edit Taxes CRA
Dividend Stocks

Tax Time: How to Keep More of Your Money

Nearly everyone hates paying taxes, although Canadians can lessen the financial pain with the right tax strategies.

Read more »