Loblaw Companies Ltd (L.TO)

Consumer stocks, particularly staples, do well from about April all the way through to November. This is basically a defensive position. Chart shows this is showing higher highs and higher lows. Everything is favourable for this. Once you get to November, you probably want to look for something more aggressive.

Doesn’t like supermarkets because Canada is over-stored for groceries and that affects sales growth and margins.

This is a really competitive space with really stiff competition, no matter where you turn. If you really want this, wait for a pullback. It’s a good, long term investment but in a very competitive marketplace.

Had a monster quarter which he thinks was a result of better same-store sales and the spectre of higher inflation in the 2^nd half. Company is saying they have $300 million in synergies from Shoppers over the next 3 years. Have an SAP rollout that is intact. He forecasts really good operational earnings growth of about 19% over the next few years, 12% cash flow growth and pretty decent dividend growth of around 7.4%. It is vulnerable that you are not going to get as much inflation in food as the market is positioned for. He would buy this at a lower price.

The 1 year chart looks pretty healthy. Had a bit of a move today, and has taken out the $48 level, and will now attempt to take out the next resistance level. So far, so good. Might be a little overbought and might pull back. You’ll have to see how it plays out over the next few days. He would like to see the $49 level broken, and if it does, he can project the range forward and would target around $58.

Has to go through consolidation pains/gains, and hope that the synergies materialize. Going forward it offers some interesting opportunities. Multiple expansion would be a significant help to them. Unfortunately, trading in the Canadian marketplace, it has a richer multiple than its US peers. Before owning he will want to see their ability to raise the dividend a little bit more.

Likes the Shoppers acquisition which is in a more attractive space. Retail groceries is very competitive. The company has been investing in their IT system and SAP and refurbishing all their stores. This is largely behind them, so that should mean moderating or declining CapX, which is positive for cash flow. Announced a dividend increase which signals management’s confidence that cash flow will be strong. Yield of 2.05%.

Shoppers was a big deal for them and even though they may have overpaid a little, they are buying a great company. Their loyalty structure, promotional acumen, are this Loblaw’s can learn from. He stays out of the space because of squeezed margins.

Potential with L-T with Shoppers acquisition. You have more of a food retailer with Shoppers. Compared to Walgreens, he prefers it over L-T because food retailing is so tough in Canada.

Grocery business is intensely competitive, but she really likes the Shoppers acquisition. Conditions set out by the review board were well within expectations. It puts them into a health/wellness sector that she likes. Internally, the company is coming off a heavy investment repair period in their stores. Their logistic system is largely behind them. This will give them close to a 25% share in the Pharma business.

Shoppers deal will close shortly. Combining them will be a great plus. Joe Fresh also broadens its appeal. Costco or Wal-Mart could initiate a price war that would wipe out margins, but thinks they won’t do that.

Chart shows an upward move in 2009-2010, followed by a corrective period into 2012, followed by another upward advance in 2012-2013. This was followed by another corrective period. Basically this is in a corrective mode which could last for quite a while. This is basically a stock that is not going to hurt you, but probably not do you a lot of good. It is in an upward channel and it is near the bottom of the channel, so there is no harm in taking a position. Dividend yield of 2.08%.

Shoppers deal closes end of Q1 on their calendar. It has underperformed markets. Likes the acquisition. Grocery will contribute to be competitive. But the Shoppers deal is at a good price. Gives them a good footprint in health and wellness. Able to feed private label products through each other. Should be continuing improved cash flows going forward and could pay down debt or pay back shareholders. 15-20% total return expected.

No longer a grocery store, but a holding company. They have REIT, PC Financial, Joe Fresh and Shoppers. Gangbuster earnings last quarter. Not all groceries.

Extreme competition in the sector. He is not looking at it. Internally they are getting their administrative side and supply chain in order. They are about to close the shoppers deal which will transform both companies in a positive way. He has no idea what effect Joe Fresh will have. It is the top rated company for him in the sector.