Loblaw Companies Ltd. (TSX: L) is Canada’s largest food retailer and leading pharmacy outlet, with more than 2,400 stores across Canada and $59.5 billion in revenue in 2023. During the last five years, Loblaw’s stock price has soared more than 150% to over $177 per share. Today, the stock trades at an attractive 18 times next year’s expected earnings.
So, what should we do with Loblaw stock? Is it a buy, sell, or a hold?
Source: Getty Images
A strong history
Looking back at Loblaw’s history and presence in Canada, I’m struck by its scale, reach, and entrenched position. For example, Loblaw has more than 2,400 stores across Canada. Also, 90% of Canadians live within 10 kilometres of a Loblaw location. Finally, the first Loblaw grocery store opened way back in 1919 – more than 100 years ago.
This impressive history extends to Loblaw stock and its history of shareholder value creation. Over the last 20 years, Loblaw stock has increased 230%. But it’s important to note that most of this capital appreciation has happened since the pandemic years. In fact, the stock was trading at approximately $70 before the pandemic hit.
So, what happened?
Population growth
According to Statistics Canada, the Canadian population grew by 3.2% in 2023, the highest it’s been since the 1950s. There’s no doubt that this population surge is benefitting the economy in so many ways. Loblaw is one of the beneficiaries. Everybody needs food. Being the largest grocery store chain in Canada with an estimated 29% market share, Loblaw is a big beneficiary.
Loblaw expands into the pharmacy business
One of Loblaw’s best decisions was to buy Shopper’s Drugmart 10 years ago. This has given the grocer exposure to one of the strongest and most defensive businesses out there, the pharmacy business. Today, Shoppers Drugmart is benefitting from strong drug sales, as the aging population continues to rear its ugly head.
Also, in Ontario, the scope of practice for pharmacists is expanding rapidly in order to ease the pressure on family doctors. In early 2023, the government of Ontario granted pharmacists the ability to treat 13 minor ailments, such as pink eye and urinary tract infections. Today, the government is considering expanding this list even further.
For Shopper’s Drugmart’s pharmacies, this means pharmaceutical services are growing rapidly. By the end of next year, management expects to have 260 clinics to handle the delivery of these new services.
What does all of this mean for Loblaw stock?
Well, for me, all of this serves to build a case to buy the stock. The trends and developments that I’ve touched upon in this article highlight Loblaw’s positive outlook. For example, population growth continues strong, which will drive demand for everything, including food and drugs. Also, an aging population will drive demand for pharmaceuticals. And lastly, an expanding list of services that pharmacists can offer will drive Shopper’s Drugmart’s pharmacy business higher.
The bottom line
As the leading grocery and pharmacy outlet, Loblaw stands to continue to benefit from strong fundamentals that are shaping the future. Loblaw’s stock price has done exceptionally well over the last five years. In my view, it remains attractively valued with plenty of tailwinds to drive it higher, as discussed in this article.
