Canada’s largest grocery chain continues to do well in 2023. In the last month alone, shares of Loblaw Companies (TSX: L) rose 8%. Yet there are a few noteworthy points to mention as to why this might be, and some of them definitely should be considered by investors.
What’s been happening for Loblaw stock
There were several announcements made over the last month or so, which led to the increase in Loblaw stock. First, the company announced it would be spending $2 billion to expand the business in 2023. Its reinvestment would be to both grow and improve its stores, opening 38 new or relocated stores, and converting 600 others.
This comes after Loblaw stock announced during its last quarterly report these would be funded by about $1.8 billion in “excess real estate.” This would be sold at rapidly over the next few years.
Another major announcement came down quite recently. Loblaw stock and 52.6% shareholder George Weston announced a new chief executive officer (CEO) and president of Loblaw. The new president would be Per Bank, replacing Galen Weston as early as first quarter 2024. Weston will remain chair of the board as well as CEO and chair of the board of George Weston.
But there’s more than that
Now, this recent movement is great for Loblaw stock and its investors. Loblaw stock continues to have more than just groceries in its basket. It now has partnerships with Esso locations to collect President’s Choice rewards. The company acquired Shoppers Drug Mart back in 2014. It also has a number of low-cost retailers for consumers to choose from as well.
Its private-label assortment includes top sellers such as President’s choice and No Name. Furthermore, it has its PC Optimum Loyalty and financial services business. It’s these diversified investments that company has made over the years that brings the stock its value.
Yet while shares are up 8% in the last month, it’s come down recently. What’s more, it’s up just about 7% in the last year. It trades at a fair 21.7 times earnings as of writing, offering a 1.3% dividend yield to investors. So, there’s not all that much value right now.
Is it a buy?
The big tell in the next while is going to be the company’s earnings report. How does it plan on holding out through the summer when Canada is slated to go through a recession? Consumers have been more than displeased about the inflation costs associated with grocery items — so much so that some believe this is the reason for Galen Weston stepping back.
When earnings come out on May 3, investors should look at how Loblaw stock plans to get through this recession then. What are the forecasts for 2023? And how does the company plan to sell $1.8 billion worth of real estate at a time when the market isn’t performing well?
All of these questions should hopefully be addressed in the near future. For now, though, Loblaw stock might be best suited to remain on your watchlist. Come earnings, it may actually drop. But long-term investors should continue to hold on, as this company simply isn’t going anywhere and is likely to rise again, even if it drops amid a recession.
