Why Metro (TSX:MRU) Is the Ultimate Grocery Stock

Metro, Inc. (TSX:MRU) acquired Jean Coutu in 2018, and since then the stock has increased by 29%. Is it time to check out Metro?

Between Food Basics, Metro (TSX: MRU), and Jean Coutu, you would be hard pressed to find a Canadian that has not set foot in one of these stores.

As an investor, this should be exciting news for you, as it indicates that Metro has a strong footprint across Canada as it owns all three brands.

Metro’s recent notoriety comes from its acquisition of Jean Coutu which is a leader in the Quebec pharmacy industry. The grocery giant paid $4.5 billion in the form of cash and Metro stock, and it expects combined revenues of $16 billion and annual savings of $75 million after three years.

From FY 2014 to FY 2017, net income increased from $447 million to $592 million, which represents a compounded annual growth rate of 7.28%.

Metro’s future success in the grocery industry will be dependent on the outcome of its acquisition of Jean Coutu and its net income.

Synergy from Jean Coutu acquisition

The first quarter after acquiring Jean Coutu, Metro’s sales increased by 15%. This caused its stock price to increase 4% to $44.54

Food same-store sales increased 2.1% while pharmacy same-store sales increased 1.8%. The plan is to have Jean Coutu carry some of Metro’s private label Selection and Irresistibles products, while Metro carries Jean Coutu’s private label beauty products.

This move is similar to the one made by Loblaw in 2013, whereby it acquired Shoppers Drug Mart for $12.4 billion in cash and stock. For those of you who have set foot in Shoppers Drug Mart, you will have noticed that it carries many products from the President’s Choice label, which is wholly owned by Loblaw.

If Metro is able to replicate the success of Loblaw, then investors should expect to see continued growth in its stock price.

Increasing net income

Metro’s net income has increased 32% from FY 2014 to FY 2017, which represents a compounded annual growth rate of 7.28%.

What makes this figure impressive is the fact that the grocery industry is very competitive, and the margins are slim. Thus, for Metro to increase its bottom line by 7.28% each year, it has a successful strategy for growth.

As Canada’s population grows, you can expect this figure to increase.

Bottom line

If the choice was between Loblaw and Metro, I would recommend Metro without hesitation.

There is an old adage that says you should always invest in the second-best company, because the best company is the one that makes the mistakes and the second best learns from it.

The case of Metro is no different as the grocery industry is highly competitive, which means grocery stores must find creative ways to win over customers.

Metro’s competitive advantage is two-fold. Firstly, the company recently acquired Jean Coutu, which means that its retail presence increased exponentially. Secondly, the company has increased its net income every year since FY 2014, which cannot be said about Loblaw.

Simply put, Metro is a great company with great growth potential.

If you liked this article, click the link below for exclusive insight.

Fool contributor Chen Liu has no position in any of the stocks mentioned.

More on Investing

An engineer works at a hydroelectric power station, which creates renewable energy.
Energy Stocks

Brazil’s Election Has Investors Watching: This TSX Stock Offers a Different Way In

Brookfield Renewable gives Canadian investors Brazilian power exposure without making Brazil the entire investment.

Read more »

money goes up and down in balance
Energy Stocks

Reinvest or Take the Cash? How to Decide on Your Dividends

Enbridge (TSX:ENB) stock has a high yield. Should you re-invest or take the cash?

Read more »

businessmen shake hands to close a deal
Dividend Stocks

A Canada-India Trade Deal Could Be Big for Infrastructure: Is WSP Stock a Buy?

India could require roughly US$840 billion of urban infrastructure investment over 15 years.

Read more »

Yellow caution tape attached to traffic cone
Stocks for Beginners

Is a TFSA a Good Place for an Emergency Fund? It Depends

Wondering if the TFSA is a good place for an emergency fund? We dig into when it is and isn't…

Read more »

woman considering the future
Dividend Stocks

How Much Would You Need to Invest to Earn $100 a Month in Dividends?

These two monthly-paying dividend stocks can boost your passive income in this uncertain macroeconomic environment.

Read more »

oil pumps at sunset
Energy Stocks

OPEC+ Can’t Deliver Every Barrel it Promised: This Pipeline Stock Still Gets Paid

Pembina provides energy exposure through contracted infrastructure rather than relying entirely on oil prices.

Read more »

shoppers in an indoor mall
Dividend Stocks

This 6% Dividend Stock Can Pay Into Your Nest Egg Every Month

Looking for monthly passive income? Discover why Canadian Net REIT’s safe 6% yield makes it a top dividend stock to…

Read more »

man in bowtie poses with abacus
Tech Stocks

A Simple Way to Estimate Your Retirement Number

Here's how Canadian couples can calculate their retirement number in 2026.

Read more »