Market Rally 2020: Canadian Tire Stock Gains 85% Since March on Investor Optimism

Can Canadian Tire (TSX:CTC.A) stock move higher in the second half of 2020?

| More on:
Target. Stand out from the crowd

Image source: Getty Images

Shares of Canadian Tire (TSX:CTC.A) have recovered considerably since it bottomed out in March 2020. Canadian Tire stock is currently trading at $123.85, which is 85% higher than its 52-week low of $67.15. However, investors should not that it’s still trading 21% below 52-week high of $157.36. This means Canadian Tire investors lost 58% in the coronavirus-led bear market.

The Canada-based retail company is a household name and operates in the automotive, hardware, and houseware space. Canadian Tire business includes a retail segment and a REIT vertical as well. The company ended 2019 with 1,746 retail and gasoline outlets, up from 1,702 in 2017. The retail giant also has multiple brands such as Sport Check, Mark’s, and Helly Hansen under its banner.

Driven by the increase in store count, Canadian Tire has managed to increase stores and retail sales from $12.1 billion in 2017 to $13.2 billion in 2019. Overall sales rose from $13.27 billion to $14.53 billion in this period.

In the first quarter of 2020, despite countrywide shutdowns, Canadian Tire’s total sales were down just 1.6% year over year. Comparatively, its earnings per share fell to -$0.22 in Q1 from $1.12 in the prior-year period.

The shift to e-commerce should benefit Canadian Tire

While the retail sector has been hit hard in the first half of 2020, a few of them have looked to the e-commerce segment to offset this decline. In Q1, Canadian Tire’s e-commerce sales grew 44% year over year primarily due to 80% growth in CTR (Canadian Tire retail). It implemented curbside pickup across all stores in the country.

The CTR website processes close to 80,000 orders daily compared to the pre-pandemic figure of 5,000. Though the COVID-19 is likely to be a near-term headwind, the shift to e-commerce has accelerated and should drive the company top line in the upcoming decade.

Focus on a healthy balance sheet

Canadian Tire management stated the company has a strong balance sheet and is well capitalized. At the end of Q1, it had $1.5 billion in liquidity in its retail segment. This number stood at $300 million for CT REIT and $2.25 billion for Financial Services.

Canadian Tire also entered into a one-year bank credit facility for $650 million with four financial institutions. The company’s CFO Gregory Craig stated, “We continue to manage our cash prudently by managing our working capital, and have taken steps to reduce discretionary costs at home office and our corporate stores.”

Canadian Tire is also looking to improve operational efficiency to cut costs in a volatile environment. Canadian Tire management remains committed to achieving an annualized cost savings target of $200 million by the end of 2022. Further, it’s strengthening the digital platform to improve user engagement and drive online sales higher in the upcoming quarters.

Canadian Tire announced a quarterly dividend of $1.1375 per share, indicating a forward yield of 3.7%. This means a $5,000 investment in this stock will generate approximately $185 in annual dividends.

Canadian Tire stock has recovered at a record pace in the last two-and-a-half months. Its strategy to push online sales higher coupled with cost reduction will help the company through an uncertain macro environment.

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 Aditya Raghunath has no position in any of the stocks mentioned.

More on Dividend Stocks

thinking
Dividend Stocks

Should You Buy BCE Stock for its 8.6% Dividend Yield?

Down over 20% from all-time highs, BCE stock offers you a tasty dividend yield in 2024. But is the TSX…

Read more »

grow dividends
Dividend Stocks

How Long Would It Take to Turn $20,000 Into $100,000 With TSX Dividend Stocks?

Here's how high-quality TSX dividend stocks and the power of compound interest can help grow your investments by 400% or…

Read more »

Paper airplanes flying on blue sky with form of growing graph
Dividend Stocks

2 Soaring Stocks I’d Buy Now With No Hesitation

These two stocks may be the most expensive on the market, but they're high for a reason! And I'm still…

Read more »

Hour glass and calendar concept for time slipping away for important appointment date, schedule and deadline
Dividend Stocks

Invest $374.50 Each Month to Create Passive Income of $288 in 2024

Investing a specific amount each month to create passive income this year is possible with monthly dividend payers.

Read more »

Happy retirement
Dividend Stocks

2 Stocks to Help Turn $100,000 Into $1 Million

If you want to reach $1 million, $100,000 can certainly get you there. Even if you invest in some low…

Read more »

warning or alert
Dividend Stocks

Income Alert: These Stocks Just Raised Their Dividends

There's no shortage of companies that raised their dividends recently. Here's a trio of options to consider buying now.

Read more »

Business success with growing, rising charts and businessman in background
Dividend Stocks

Don’t Look Now, But These 3 TSX Stocks Look Poised for a Nice Rally 

Three TSX stocks are in a downtrend amid headwinds. 2024 may be rocky for them, but they are poised for…

Read more »

protect, safe, trust
Dividend Stocks

3 Safe Dividend Stocks to Beat Inflation

These three dividend stocks are excellent buys to beat inflation, given their solid underlying businesses and high yields.

Read more »