Opinions
Fred Ketchen
Canadian Tire Corporation Ltd
CTC-T
WEAK BUY
Nov 27, 2007
Stock price when the opinion was issued
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Another iconic national brand, Canadian Tire is the dark horse on this list. It's no secret that retail has struggled this year as higher wages, costlier shipping and theft (aka “shrinkage”) have battered the sector. Canadian Tire has sunk 30% off its 52-week highs and recently made a new low of $131.46. At the same time, the stock's PE has fallen below 10x compared to its five-year median of 11.5x.
Many retailers are coming off a rough quarter, but CTC is a seasonally sensitive stock. Last winter saw weak demand for winter items like snowblowers (due to a mild winter), and that's impacted CTC shares. Assuming regular seasonal weather in spring and summer, business should pick up. Hold if you already own and don't sell. He doesn't see long-term weakness.
The stock is 'bouncy' certainly. We think it is a decent company but we did not like the decline in sales in the last quarter, especially in a period where inflation is still present. Yes, some of its weakness was clearly related to the weather. But at 22X earnings, we think the valuation could be adjusted to reflect the current lack of growth. Thus, we would fairly reluctant to start an aggressive buy program on the stock today.
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Traditional bricks and mortar business that will face competition from eCommerce. Undifferentiated shopping experience that is not enjoyable. Discretionary product offering makes it difficult to retain customers. Would not recommend investing at this time. Housing slowdown in Canada will also be hard on the business.