The top 3 retail stocks – a comparison

 

With the great slump in oil prices, this is a good time to look at other asset classes. Here we are comparing the three big grocery chains Canada – Loblaw, Metro and Alimentation Couche-Tard

Comparing the companies on

  • Business performance analysis
  • Fundamental analysis
  • Relative Valuation

Business Performance Analysis

 

While reviewing the earning’s multiple, Metro and Loblaw are trading at around 18X while Alimentation Couche-Tard is trading at 26X- a huge premium. The market is pricing Alimentation Couche-Tard’s stock to outperform both Metro and Loblaw, as has been the case in the past two years. Loblaw and Metro are trading at similar values despite Loblaw acquiring Shoppers Drug, that led the stock to re-rate.

While rewieving at the Capital investment strategy,

 

Alimentation Couche-Tard is outperforming, while Loblaw is the worst performer in this metric.

 

Comparing Earnings and Revenue Growth of all the three grocery stores

 

  • Loblaw has shown the highest revenue growth of 20.63, however the earnings growth is a dismal -113% indicating that the operations are still under scrutiny
  • Similarly Metro, has a revenue growth of 1.65x but a negative earnings growth of -36.73
  • Alimenation Couche-Tard on the other hand has a revenue growth of 7.13 and a positive earnings growth of 21.64. Alimentation Couche-Tard is the only grocery chain amongst its peers which is having a positive earnings growth for the past 5 years consecutively. This explains the outperformance.

Fundamental Analysis

 

Company

Fundamental Analysis score

Loblaw

21

Metro

46

Alimentation Couche-Tard

86

 

On the Fundamentals Analysis score ascertained by our calculations, Alimentation Couche-Tard is the best performer in this segment while Loblaw is the worst.

However after Loblaw’s acquisition of Shopper Drug Mart, their revenue growth has increased. This has not translated to earnings growth.

Loblaw has the highest revenue growth in this segment however their SG&A expenses have increased at a rate of 34% when top line has increased by 18%.

 

Relative valuation

 

According to our relative valuation model, all the three stocks are trading at a premium. However given the pull back in oil, retail stocks are a good avenue to invest.

 

This means..

Among the three grocery stocks, Alimentation Couche-Tard continues to command a high valuation among peers. This is justified because amongst its peers it is the only grocery chain that runs an efficient profitable business showing revenue and earnings growth. On a fundamental analysis, Loblaw is the lowest. However, Loblaw has demonstrated higher revenue growth amongst its peers. If they are able to streamline their operations Loblaw will be an outperformer. The earnings growth will be closely watched on the back of Shoppers Drug acquisition.

 

 

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