Food prices have been one of the key drivers of inflation over the past year. This has been tough on Canadian consumers, but grocery retailers have gobbled up huge profits. Grand View Research recently projected that the global food and grocery retail market would grow to a valuation of $14.7 trillion by 2030. That would represent a compound annual growth rate (CAGR) of 3% over the forecast period. Today, I want to compare two of the top grocery retail stocks on the TSX: Loblaw Companies (TSX:L) and Metro (TSX:MRU). Let’s jump in.
The case for Loblaw stock ahead of the summer season
Loblaw Companies is the largest grocery retailer in Canada. Some of its well-known subsidiaries include Fortinos, No Frills, Freshmart, and others. Shares of this top grocery retailer have dropped 1% month over month as of mid-morning trading on May 15. The stock is still up 2.1% so far in 2023.
This company unveiled its first-quarter (Q1) fiscal 2023 earnings on May 3. Loblaw delivered revenue growth of 6% to $12.9 billion. Meanwhile, operating income increased 4.2% to $769 million. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) climbed 7.8% year on year to $1.44 billion. Moreover, adjusted net earnings came in at $505 million, or $1.55 per diluted share — up 10%, or 14%, respectively, compared to the previous year.
Shares of this top grocery retailer currently possess a solid price-to-earnings (P/E) ratio of 21. Loblaw is still trading in favourable territory compared to its industry peers. In its first-quarter report, Loblaw announced a 10% hike to its quarterly dividend to $0.446 per common share. That represents a modest 1.4% yield.
Why you might want to bet on Metro instead
Metro is a Montreal-based grocery retailer that is a dominant player in its home province of Quebec. It completed a prior merger with Jean Coutu pharmacies that mirrored Loblaw’s acquisition of Shoppers Drug Mart. Shares of Metro have increased 3.5% month over month at the time of this writing. That has pushed the stock into the black in the year-to-date period.
Investors got to see Metro’s Q2 fiscal 2023 earnings on April 19. The company delivered sales growth of 6.6% to $4.55 billion in the second quarter. Indeed, food same-store sales and pharmacy same-store sales achieved 5.3% and 7.3% growth, respectively, compared to Q2 fiscal 2022. Moreover, it delivered adjusted net earnings of $225 million, or $0.96 per diluted share, which was up 10%, or 14%, over the prior year.
This grocery retail stock possesses a P/E ratio of 20 at the time of this writing. Meanwhile, Metro offers a quarterly dividend of $0.302 per share, which represents a 1.5% yield.
The verdict
Loblaw’s and Metro’s recent results illustrate how strong results have been for grocery retailers more broadly. Moreover, it makes choosing between the two Canadian stocks a very close call at the midway point in May. In my view, Metro just barely edges out Loblaw right now due to its fantastic balance sheet, solid value, and comparable dividend.
