A top defensive sector in the stock market is consumer staples. Makers and sellers of everyday items are in this “need” sector. The business continues regardless of the overall state of the economy. On the TSX, the top names are Metro (TSX: MRU) and Loblaw (TSX: L).
Both companies boast stable revenues because of their defensive business models. These large-cap stocks will add stability to any investment portfolio. However, if you’re taking positions in 2025, which grocery stock is better?
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Modernization program
Metro reports billions of dollars in annual sales and employs around 98,000 in Quebec and Ontario. The $20 billion food and pharmacy company operate a vast network of food stores (995) and pharmacies (639). Other banners, besides Metro and Metro Pharmacy, include Metro Plus, Super C, Jean Coutu, Brunet, and Food Basics Pharmacy.
Its board chairman, Pierre Boivin, said Metro achieved good results in fiscal 2024 despite the constantly changing market. In the 12 months ending September 28, 2024, sales increased 2.4% year over year to $21.2 billion, although net earnings declined 8.5% to $931.7 million from a year ago.
According to management, the successful completion of the supply chain modernization program was the year’s highlight. Metro has reached the final milestone of its seven-year, nearly billion-dollar investment. In the fourth quarter (Q4) fiscal 2024, sales rose 2.6% to $4.94 billion versus Q3 fiscal 2023, while net earnings dipped 1% to $219.9 million. Notably, online food sales in third-party marketplaces grew by 46%.
Eric La Flèche, president and chief executive officer (CEO) of Metro, said, “Our 2024 fiscal year ended with a solid fourth quarter driven by strong comparable sales growth in both food and pharmacy on top of a very strong quarter last year.” He added that the results for this transition year met expectations and were well within the guidance provided last year.
For fiscal 2025, Metro will focus on realizing efficiency gains and improving the service to its store network. Management also expects the gradual resumption of profit growth and hit the 8% to 10% annual growth target over the medium and long term. If you invest today, MRU trades at $90.27 per share and pays a modest but safe 1.55% dividend (31.17% payout ratio).
Size matters
Loblaw is more than twice the size of Metro. The $55.4 billion Canadian retailer operates in the grocery and drugstore industries and has expanded into healthcare. At $182.93 per share, the total return in 10 years is a respectable +346.57%. The dividend offer today is 1.12% (26.71% payout ratio).
Its president and CEO, Per Bank, said, “Our relentless focus on retail excellence allows us to provide great value to Canadians and invest in future growth.” In Q3 2024, revenue and net income rose 1.5% and 25% to $18.5 billion and $777 million compared to Q3 2023. Bank notes the increased customer traffic to Loblaw stores.
Market analysts are generally positive or bullish about Loblaw. Based on their buy recommendation, the 12-month average price target is $195 (+6.6%).
Sector stalwarts
Metro and Loblaw are sector stalwarts. However, if the basis for choosing is the recent financial performance, the larger grocery store with a double-digit increase in net income is the better buy.
