North West Company (NWC-T)

The quarter is a big relief for worried investors. EPS of 83c beat estimates of 68c. Sales of $618M beat estimates by 2%. EBITDA of $83.3M beat estimates of $73.1M. Sales rose 6.8% with comp. sales up 4.7%. Profit rose 17%. EBITDA rose 15% year over year. TD has already raised its target on the news. The dividend was increased 2.6%. Expenses were kept in line and it was a solid quarter. The outlook sounded relatively positive as well. The write off of the Fox Lake store due to fire was embedded in these results and this should not have a material impact going forward. 
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NWC was under pressure recently after weak earnings and the stock is now trading at 11.4x times' Forward P/E. In 1Q - 2024, NWC’s revenue grew 7.5% to $594M, beating estimates of $589M and EPS was $0.54 missing estimates of $0.59. Based on consensus estimates, sales are expected to grow by 4% to $2.45B, while EPS is expected to be $2.52 in 2024 and $2.72 in 2025 (note January year end). Recent earnings were under pressure due to high inflation and interest rates, which were largely expected. NWC might have some exposure to a slowing consumer, but it is also a defensive consumer staples name.

We like the company in general and think the long-term thesis on it as a consumer staple name is unchanged. We would be okay to slowly accumulate, especially at this valuation, which we think is quite attractive compared both to peers and historical averages. The current quarter may have been impacted by fires, but the company is supposed to announce if there are 'material' concerns, and it has not. 
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Retailer mainly in remote northern locations, a natural economic moat. Competition is limited. Pricing power, which leads to profitability. ROE better than TSX average. Missed earnings due to inflation, so valuation is attractive. Yield is 4.77%.

Average daily volumes are only 90,000 shares, but NWC pays a hefty dividend yield of 4.22% (huge among the grocers) and safe based on a 21.88% payout ratio. NWC also offers a super-low beta of 0.62. It is safe and defensive. Performance is also consistent. The company has beaten or met its last four quarters. Its PE of 14.34x is in-line with this sector (with Empire trading at 12.87x and Metro close to 20x). Read 3 Deep Value Stocks to Buy Now for our full analysis.

Trades at 13x PE. Offers a bigger yield of 4.5% than the major grocery stocks.

Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. The company reports on Thursday. Likes the company somewhat. It’s cheap at 13x earnings and offers a nice, secure dividend. $591M in sales is expected with a $0.73 per share income. Unlock Premium - Try 5i Free

Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. They beat EPS estimates by 4 cents, at 70 cents. EBITDA beat estimates by 20% at $83.6M. Same store sales rose. They continue to benefit from the pandemic and have controlled costs well. Unlock Premium - Try 5i Free