METRO INC. $68 (Toronto symbol MRU; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 87.6 million; Market cap: $6.0 billion; Price-to-sales ratio: 0.5; Dividend yield: 1.8%; TSINetwork Rating: Average; www.metro.ca) operates about 600 supermarkets in Quebec and Ontario. It also has over 250 drugstores that operate under the Brunet, The Pharmacy and Drug Basics banners.
Metro continues to cut costs in response to competition from larger Canadian chains, like Loblaw and Sobeys, and big box stores like Wal-Mart and Costco. It is also converting some of its underperforming Metro outlets in Ontario to the faster-growing Food Basics discount banner.
In its fiscal 2014 second quarter, which ended March 15, 2014, Metro’s earnings rose 0.5%, to $96.9 million from $96.4 million a year earlier. In the last six months, the company has spent $301.8 million on share buybacks. Due to fewer shares outstanding, per-share earnings rose 9.2%, to $1.07 from $0.98.
Sales rose 1.7%, to $2.55 billion from $2.51 billion. Same-store sales gained 1.0%.
Metro’s 5.7% stake in Alimentation Couche-Tard (Toronto symbol ATD.B) is an underappreciated asset. (Couche-Tard, which operates convenience stores in North America and Norway, is a recommendation of Stock Pickers Digest, our newsletter for aggressive investing.) In the latest quarter, this stake added $11.0 million to Metro’s pre-tax earnings, up 37.5% from $8.0 million a year ago.
The company’s long-term debt of $846.5 million is a low 14% of its market cap. That gives it plenty of room to keep investing in its own stores or make acquisitions. It could also enhance its value by buying back more shares or raising its $1.20 dividend, which yields 1.8%.
The stock trades at a moderate 13.5 times the $5.04 a share that the company will probably earn in fiscal 2014.
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