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Andrew Willis: With summer around the corner, investors might be tempted to bet on everyone heading to Canadian Tire (CTC.A) to gear up for the outdoors – but Canadian Tire stock is more than your neighbourhood store.
They have many brands and streams of revenue now, from Mark’s to Helly Hansen, PartSource and SportCheck – along with its own financial services business. And this complex picture for investors to consider also makes for a delicate balance that keeps Canadian Tire stock within our fair value range.
We see growth opportunities and strengths at Canadian Tire, but also critical threats like Amazon and Wal-Mart looming larger. And as an investor, it’s best to be prepared for whatever eventually manages to throw off this balance, either to the upside or downside.
One decision that weighs heavily on management is online investment. Equity analyst Zain Akbari says Canadian Tire needs to adapt quickly to an increasingly digital retail environment. At the moment, Amazon’s kept at bay by Canadian Tire’s extensive physical footprint, wherein the battle between price and convenience is won by the latter – especially in rural and semi-rural areas.
What can Canadian Tire do, however, when shipping improves at Amazon? Enter their turf. We think they should continue to expand their digital order capacity, and we still like Canadian Tire money for loyalty, especially at the gas pumps – so they can get people back in the stores.
For Morningstar, I’m Andrew Willis.
Bulls Say
- An expanded web presence and increasing use of digital tools in-store should help the company improve the in-store experience while enabling it to compete more effectively against digital rivals.
- Canadian Tire's stable of owned brands that are exclusively sold in its stores differentiates its assortment from digital and physical retail rivals.
- Canadian Tire’s proximity to customers via its dense store network creates an opportunity to build its presence in click-and-collect digital sales.
Bears Say
- Competition is intensifying, with multinational digital sellers (such as Amazon) rapidly expanding in Canada and American brick-and-mortar retailers looking north for growth.
- The company is affected by macroeconomic instability, and the finance arm bears meaningful subprime credit exposure.
- Fuel prices affect sales directly (through Canadian Tire’s vehicle fuel sales effort) and indirectly (through its stores located in Alberta, where the energy sector accounts for more than 25% of economic output).
Editor's Note: All images are courtesy of Unsplash.com and AP Images.
