Key Morningstar Metrics for Loblaw Companies
- Fair Value Estimate: C$135.00
- Morningstar Rating: ★
- Morningstar Economic Moat Rating: None
- Morningstar Uncertainty Rating: Low
What We Thought of Loblaw Companies' Earnings
Loblaw Companies' L fiscal fourth-quarter results were mixed, as sales of USD 14.9 billion lagged our USD 15.3 billion assumption, but USD 2.20 in adjusted earnings per share exceeded our USD 2.13 forecast. Factoring in these results, along with guidance that corroborates our high-single-digit percentage increase for fiscal 2025 adjusted EPS growth, we don’t plan any material changes to our fair value estimate of $C135 per share, and we continue to view the stock as overvalued.
While we acknowledge Loblaw’s extensive footprint and strong value appeal position it well to attract consumers, we believe investors may be overestimating its profit trajectory. We surmise fierce price competition will constrain gross margin expansion, while ongoing investment will be necessary to remain competitive in an industry with no switching costs, underpinning our no moat rating.
In the quarter, food retail same-store sales rose 2% (excluding timing shifts) and continued to improve sequentially from 1.3% in the previous quarter, benefiting from higher basket and traffic. We think Loblaw’s discount focus and investments in its PC Optimum loyalty program helped attract consumers, but signs of financial strain persist. Increased discounting and higher loyalty point redemption rates drove a $129 million noncash charge due to elevated participation, underscoring the intensity of the competitive landscape. We remain positive about the retailer’s expansion into additional hard discount stores, aiming for 50 openings in fiscal 2025.
Elsewhere, pharmacy and healthcare services performance remained strong, with same-store sales up 6.3% in the quarter. We see this as a key growth driver as Loblaw expands primary care and other services, adding revenue streams and fueling its appeal as a one-stop shop. Loblaw’s plan to build 250 in-store care clinics remains strategically sound, in our view, propelling 3.3% average annual sales growth for the segment throughout our 10-year forecast, ahead of the firm’s overall 2.6% pace.
Loblaw Companies Stock vs. Morningstar Fair Value Estimate
Source: Morningstar Direct. Latest price as of 03:29 PM EST. Data as of Feb. 20, 2025.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.