CB Hot List: Analysts are bullish on Loblaw—time to buy?

Slow and steady wins the race.

(Photo by Peter Power/The Globe and Mail)

(Photo by Peter Power/The Globe and Mail)

Loblaw Companies Ltd. (TSX: L)

On February 21, investors in Brampton-based Loblaw Companies Ltd. got a bit of a scare after the grocery chain announced that its fourth quarter profit fell by about 31%. Thanks to a $61 million restructuring charge, the company’s net income was $143 million, down from $174 million in the same quarter the year before.

Fortunately for shareholders, the stock price barely budged. Why? Because no investor wants to get rid this slow, but steady performer. Loblaw is one of those companies that keeps portfolios stable. It’s in the food business and people need to eat regardless of how the economy is doing. You won’t get massive returns, but you’ll still do well; it’s up about 10% over the last 12 months and 35% since February 2008. It also pays a decent 2.2% yield, which is attractive to income seekers.

If you also look closer at Thursday’s numbers, the company actually beat analyst recommendations. Raymond James, which has an outperform on the company, pointed out in a note that its Q4 adjusted earnings per share was 67 cents, compared to a consensus estimate of 63 cents. The company also increased revenues by 1.2% and EBITDA of $510 million (that excludes the $61 million charge) beat Raymond James’ $502 million estimate.

A number of other analysts think it’s also a great company to own—according to Bloomberg 71.4% have a buy rating, 28.6% have a hold and there are no sells. Posting these numbers in what Raymond James analysts say was a “tough quarter in the Canadian grocery business” is especially impressive. The investment company thinks Loblaw’s loyalty program, which gives it a lot of important customer-related information, is a differentiator and it’s doing a good job of finding efficiencies in its supply chain.

Currently, the stock is at about $40 per share, but analysts think that will climb over the next year. Raymond James has a price target of $42, but others, such as Credit Suisse, think it could rise to $48. Whether you shop at the store or not, you should still fill your cart with this company.