Better Grocery Stock: Metro vs. Loblaw?

Two large-cap grocery stocks are defensive investments but the one with earnings growth is the better buy.

| More on:
A woman shops in a grocery store while pushing a stroller with a child

Source: Getty Images

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?

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.   

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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

stock research, analyze data
Dividend Stocks

Generate $500 in Tax-Free Monthly Income With This Easy Strategy

Passive-income investing is easy thanks to this fund's steady $0.10-per-share monthly payout.

Read more »

how to save money
Dividend Stocks

Got $2,000? 5 Telecom Stocks to Buy and Hold Forever

The discount and recovery potential are reasons enough to consider telecom stocks in Canada right now. The fact you can…

Read more »

Dividend Stocks

The Underperformers: Canadian Stocks That Missed the Mark in 2024

I'm bullish on one of these dividend stocks but bearish on the other.

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

2 TSX Stocks to Invest $20,000 and Create $2,597.60 in Passive Income

Need income? We got you, with these two top dividend stocks due for more solid growth and passive income.

Read more »

money cash dividends
Dividend Stocks

Trump Tariffs: 1 TSX Stock That Could Take a Huge Hit

This TSX stock hopes to improve shareholder returns in 2025 but could take a huge hit instead from Trump’s tariffs.

Read more »

A lake in the shape of a solar, wind and energy storage system in the middle of a lush forest as a metaphor for the concept of clean and organic renewable energy.
Dividend Stocks

Best Stock to Buy Right Now: Brookfield Renewable vs TransAlta Corporation?

Brookfield Renewable Partners (TSX:BEP.UN) is a massive player in renewables.

Read more »

Dividend Stocks

1 Canadian Stock Down 26% That’s Pure Long-Term Perfection

Canadian National Railway (TSX:CNR) is a prime example of a Dividend Aristocrat that merits consideration.

Read more »

oil and gas pipeline
Dividend Stocks

Better Midstream Stock: Pembina Pipeline vs Keyera?

Rising energy demand is setting up midstream stocks for good times, with generous dividends for shareholders.

Read more »