Up 10% in a Month, Is Loblaw Stock a Buy?

Loblaw stock (TSX:L) has seen a strong increase in share price in the last month, but could more be on the way? Or are we in for a dip?

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Shares of Loblaw Companies (TSX:L) have been climbing in the last month for a few reasons. Some are related to the company and price movement, while others come down to the market as a whole. Yet in a volatile market, what should investors consider when looking at Loblaw stock? And is a 10% increase enough to jump back in?

What happened

Loblaw stock seems to have had the biggest climb after announcing a large share repurchasing program back in October. The company announced its automatic share purchase plan under a normal course issuer bid.

The announced plan started in May of this year, and will end May 4, 2024. In that time, it will purchase up to 16,055,686 common shares, or about 5% of outstanding shares as of April 21, 2023. Therefore, what looks to have happened is that many shares could have been bought back by the company before its earnings report came out.

In that case, it seems as though Loblaw stock was looking forward to some good news. So, did it come to fruition? Let’s look at how shares might have reacted to the company’s third quarter earnings release.

Third quarter earnings

As the market started to recover and with third quarter earnings around the corner, Loblaw stock climbed upwards 10% where it remained stable. Yet when earnings came out, there was a bit of a drop.

The company saw revenue come in at $18.3 billion, up 5% compared to the same time the year before. Retail segments also saw an increase of 5% to $18 billion, with ecommerce sales up 13.6%. Operating income reached $1.1 billion, up 7.5%, and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) jumped 4.3% to $1.9 billion.

Overall, everything seemed to be climbing upwards, including its share repurchasing program. Loblaw stock purchased 2.9 million common shares for $341 million for cancellation. Yet shares dropped 2% afterwards, but not from earnings. Potential strikes at No Frills locations saw shares drop in reaction. So what did analysts have to say about it?

Analysts weigh in

The company achieved solid quarterly performance, agree analysts, reiterating the idea that the company certainly has room to grow. Especially if it continues its track record of closing the gap between Loblaw stock and its peers.

What analysts really love is that the company is known for consistent performance. That continued in the third quarter, and looks as though it should continue as the markets and economy stabilize. It now has “favourable momentum” even as food prices continue to be elevated and consumers remain strapped for cash.

So while Loblaw stock may not surge in share price, it still has some room to grow in the near future – and, in fact, has been touted as an outperformer by analysts. So should you consider it? Absolutely. Especially with a dividend yield of 1.5% on the books as well, and a 10% share increase potentially only the beginning of its share growth in the next year.

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 Amy Legate-Wolfe has positions in Loblaw Companies. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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