Loblaw Companies (TSX:L) is the largest grocery retailer in Canada. Some of the top subsidiaries at Loblaw include Fortinos, Freshmart, No Frills, President’s Choice, and many others. The company also purchased the Shoppers Drug Mart retail chain for $12.4 billion all the way back in 2013. That made Loblaw Companies the dominant player in grocery and pharmaceutical retail in Ontario and across much of Canada.
The early part of the 2020s has proven to be promising for Loblaw stock and the company it represents. Should investors expect its good fortune to carry into the next 10 years? Let’s jump in.
How has Loblaw stock performed over the past year?
Loblaw stock has climbed 10% month over month as of close on Tuesday, January 16, 2024. Meanwhile, its shares are now up 12% in the year-over-year period. Better yet, Loblaw stock has soared 108% in a five-year timespan. Typically viewed as a defensive play, Loblaw stock has proven to be a rock-solid hold for investors through stormy and calm waters alike.
Where is the grocery retail business headed in the next decade?
Grocery retailers like Loblaw and its peers have raked in amazing profits as inflation has had a huge impact on rising food prices. Canadians hoping to get a glimpse at how price fluctuations will shake out this year might want to look at the Canada Food Price Report 2024.
This annual report is prepared by Dalhousie University, the University of Guelph, the University of British Columbia, and the University of Saskatchewan. The 2024 Food Price Report forecasts that food prices will increase between 2.5% and 4.5%. Meanwhile, it stated that the average family of four should expect to spend $16,297.20 on food in 2024 — up $701.79 compared to the previous year. The largest category increase was between 5% and 7% in the categories of bakery, meat, and vegetables.
Consumers have become increasingly frustrated with high prices at the grocery store. In the report, Dr. Evan Fraser suggested that policymakers need to take steps to give grocery shoppers more options. However, in the near term, there is little to suggest that any new policies will put a dent in the dominant position Loblaw Companies possesses in the grocery retail space. That bodes well for its prospects over the next decade.
Should investors be pleased with Loblaw Companies’s latest earnings?
Investors can expect to see Loblaw Companies’s fourth-quarter (Q4) and full-year fiscal 2023 earnings in the second half of February. In Q3 FY2023, the company reported revenue of 5% year over year to $18.2 billion. Meanwhile, food retail same-store sales rose by 4.5%, while drug retail same-store sales jumped by 4.6%.
EBITDA stands for earnings before interest, taxes, depreciation, and amortization, aiming to give a better picture of a company’s profitability. In Q3 2023, Loblaw Companies delivered adjusted EBITDA of $1.9 billion — up 7.5% from the prior year. Meanwhile, operating income also increased 7.5% year over year to just over $1 billion.
Conclusion
Shares of Loblaw currently possess a price-to-earnings ratio of 20. That puts this top grocery retail stock in solid value territory compared to its industry peers. Moreover, Loblaw stock last paid out a quarterly dividend of $0.446 per share. That represents a modest 1.3% yield. It has delivered dividend growth for over five straight years, making it a Dividend Aristocrat.
Loblaw stock maintained its strong showing to start this decade on the back of its dominant position in a thriving business. Investors should not expect policymakers to make any significant changes that could negatively impact the company’s bottom line going forward.
