Experts react to Metro, Loblaw earnings
, BNN Bloomberg
METRO INC/CN (MRU:CT)
REAL-TIME QUOTE. Prices update every five seconds for TSX-listed stocks
Loblaw Companies Ltd. and Metro Inc. posted a rise in profits during the third quarter of this year, and an RBC analyst was encouraged by the companies’ strong sales despite consumer sensitivity.
JOURNALESE FOR PISSED OFF
Loblaw posted record revenue at $18.3 billion and a five per cent rise in revenue for the quarter, while profit climbed to $621 million from $556 million the year prior. Metro reported profits at $222.2 million compared to $168.7 million year-over-year and a 14 per cent rise in sales.
Both grocers demonstrated strength in same-store-sales that exceeded analysts’ expectations.
Loblaw reported a 4.5 per cent rise in same-store-sales compared to the four per cent forecasted by RBC Capital Markets.
"Another quarter of solid results for 16-week Q3 reinforces Loblaw's strong positioning and favourable momentum, particularly against the backdrop of elevated food prices and cash-squeezed consumers,” Irene Nattel, analyst at RBC Dominion Securities Inc., wrote in a note to clients on Wednesday.
The analyst has a buy rating on the stock and a 12-month price target of $174.
Desjardins analysts also highlighted sales strength at Loblaw, but had a mixed view because those numbers were were partly offset by higher-than-expected growth investments.
“Positive operating leverage from strong sales growth (was) offset by $50 million of investments in network optimization and efficiency initiatives, and, to a lesser extent, a slightly higher-than-expected decline in gross margin due to higher shrink,” Chris Li, analyst at Desjardins, wrote in a note to clients on Wednesday.
He has a hold rating on shares of Loblaw and a 12-month price target of $133.
Metro also exceed RBC Capital Markets analyst expectations with same-store food sales coming in at 6.8 per cent, while the forecast called for five per cent. Metro said inflation and discounts drove the strength. The grocer also reported a 116 per cent rise in online sales year-over-year.
"Investors likely to be disappointed in F24 financial outlook, but given Metro’s (MRU) lengthy track record of strong execution and delivering predictable financial results, we would expect investors to look beyond the 2024 investment year and toward 2025 and resumption in growth,” Nattel wrote.
She has a hold rating on shares of Metro and a 12-month price target of $84.00.
Despite the sales strength, Metro’s earnings were impacted by the five week Greater Toronto Area (GTA) strike and the company’s 2024 financial outlook called for additional expenses from network investments.
Li holds the same view on Metro, pointing to solid sales growth offset by cautious 2024 outlook due to one-time costs related to distribution centre investments.
“While the financial outlook is lower than expected, we expect long-term investors to look beyond the near-term investments and focus on the return to eight to 10 per cent earnings-per-share (EPS) growth in 2025 and beyond,” he wrote.
Li has a hold rating on shares of Metro and a 12-month price target of $77.
'GOVERNMENT BASHING' PRESSURING STOCKS: PORTFOLIO MANAGER
Both Metro’s and Loblaw’s shares were under pressure on Wednesday despite solid earnings in the third quarter, and one investment expert says this is likely due to government intervention in the sector.
“The government (is) just bashing these stocks, I mean they are basically saying you better lower these prices,” Ryan Lewenza, senior vice president and portfolio manager at Turner Investments , Raymond James, told BNN Bloomberg in an interview on Wednesday.
Lewenza referenced recent pressure from the federal government for Canadian grocers to lower food costs, as Canadians struggle with high inflation.
While he said government pressure is likely the reason grocery stocks were not surging as they should be after a strong quarter, Lewenza was optimistic that food prices will come down in the near future, which should help sway investor sentiment.
“There’s a delayed effect here of some of the inputs that go into the end food products you get,” he said.
He pointed to a drop in prices for commodities such as natural gas, which goes into producing food fertilizer, as one example of how food costs could lower in the months ahead.
“I think you’re going to see some of these food prices come down,” Lewenza said.
No comments:
Post a Comment