Loblaw (TSX: L) Expansion: Sign of Good Economic Health

Alex Cutulenco | Ubika Research Analyst | April 13, 2016: Loblaw Companies Limited (TSX: L), a publicly-traded Canadian grocery chain and pharmacy retailer, announced plans to invest $1.3 billion into a country-wide store expansion plan for 2016. The leader in the space has partnered with Choice Properties REIT (TSX: CHP.UN) to construct 50 new stores and renovate 150 existing stores.

The retailer also plans to upgrade its e-commerce initiatives, build IT infrastructure and improve its supply-chain projects.

This capital initiative will increase the company’s total store count by 2%, which is a strong gain considering Loblaw closed more stores than it opened in 2015. As seen from Figure 1, Loblaw actually shrunk in size during 2015, which makes this news all the more attractive.

Figure 1: Loblaw’s total sore count decreased over 2015 by 0.6% Source: Company MD&A (02/25/16)

Analysts should consider this news as a sign of market prosperity, as the Canadian grocery and pharmacy leader is betting on consumption growth.

It’s also worth noting that Loblaw spent $1.24 billion in 2015 on Capital Expenditure, and has consistently grown its CapEx over the years – once again a sign of business prosperity.

Figure 2: Capital Expenditures over the years has been increasing
Source: Thomson Reuters (04/12/16)

Valuation wise, Loblaw is trading at 0.9x Sales, and below that of Metro Inc. (TSX: MRU). On a Next Twelve Months (NTM) basis, Loblaw is trading at 0.8x sales (not accounting for additional sales as a result from this expansion). Overall, might be a good entry point for investors.

Read more insight on Loblaw here >>

Figure 2: Capital Expenditures over the years has been increasing
Source: Thomson Reuters (04/12/16)
Alex can be reach at: alex@gravitasfinancial.com

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