2023-04-19 19:44:11
Demand for the 115-store chain’s fashionable clothes continues to resist the effect of the economic downturn. (Photo: Denis Lalonde)
What to do with Metro, Aritzia and TD Bank securities? Here are some recommendations from analysts likely to move prices soon. Note: the author may have a totally different opinion from that expressed by the analysts.
Metro (MRU, $74.81): Growth to moderate following strong second quarter
The grocer and pharmacist reported a strong second quarter in line with expectations, but Chris Li of Desjardins Capital Markets warns that this is likely to be the high point for profit growth this year.
The analyst predicts that earnings growth will moderate by the end of the year as inflation returns to normal.
“Leaders are already seeing a moderation in inflation, but it still remains high compared to the pre-pandemic level,” explains the analyst.
In the second quarter, Metro posted adjusted net earnings of $0.96 per share, up 14.3% while the analyst had bet on $0.95. The consensus was $0.93.
The analyst attributes the difference to the gross margin of 20.1% which remained stable instead of declining to 19.8%. On the other hand, general and administrative expenses rose 7% to $460 million, eliminating the effect of the $8 million gift cards issued to frontline employees a year earlier.
The operating margin improved by 10 percentage points instead of declining by 20 points thanks to “good control of costs and the effect on these margins of the increase in revenues (which absorb fixed costs)”, explains the ‘analyst.
Same-store grocery store sales rose 5.8%, propelled by basket inflation of 9%. Without this impact, these sales declined by 3.2%, he said.
Pharmacies stole the show thanks to the lifting of health restrictions a year early. Comparable sales of health and beauty products in the commercial section jumped 12.2% while Chris Li had bet on a rise of 7.5%.
“Overall, the results do not change our view. The strong results reflect good execution and are already largely priced into the stock price,” notes Chris Li.
Given that the stock is already trading at a valuation multiple of 17.2 times expected earnings, higher than the ten-year average of 16 times, the upside potential will stick to annual earnings growth of 7 to 9% expected, he adds.
Before the morning conference call, Chris Li did not touch his target price of $77. He still recommends “keeping” the title.
Aritzia (ATZ, $41.82): Strategy to get ahead of orders is still hurting margins
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