On today’s Breakouts report, there are 19 stocks on the positive breakouts list (stocks with positive price momentum), and 39 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a defensive stock that is just 1 per cent away from appearing on the negative breakouts list - George Weston Ltd. (WN-T). Month-to-date, the share price is down 9.5 per cent, making it the worst-performing stock in the S&P/TSX consumer staples index. Given the swift sell-off, the stock is now in oversold territory.
A brief outline on GWL is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
Toronto-based GWL is a holding company with two core business segments: Loblaw (L-T) and Choice Properties Real Estate Investment Trust (CHP-UN-T). Loblaw, its largest reporting segment, is a leading grocery and drug retailer with banners that include Loblaw, No Frills, Valu-Mart, Fortinos and Shoppers Drug Mart. At the end of 2022, the company’s ownership interest in Loblaw stood at approximately 52.6 per cent. Choice Properties REIT has a portfolio of commercial and residential properties. At year-end, the company’s ownership interest in Choice Properties REIT stood at 61.7 per cent.
The Weston family is the largest shareholder with an ownership position of approximately 56 per cent, according to Bloomberg.
Before the market opened on May 9, the company reported its first quarter financial results. Adjusted earnings per share came in at $1.99, up 4.7 per cent year-over-year driven by share buybacks. The share price was relatively unchanged that day, declining 22 cents or 0.1 per cent.
At the annual meeting of shareholders held that day, management executives made the following remarks:
President and chief financial officer Richard Dufresne highlighted the company’s financial results:
“Loblaw recorded $56.5 billion in sales on growth of 6.3 per cent from the past year. Food same-store sales was up by 4.7 per cent. All of its banners performed very well, and its discount banners saw exceptional growth as consumers search for value…. In 2022, Choice delivered stable and consistent unitholder returns driven by the strength and resiliency of its market-leading portfolio. Financial highlights for 2022 include strong period end occupancy of 97.8 per cent, with retail and industrial operating at near full capacity. Solid funds from operation at $0.964 per unit, an increase of 1 per cent compared to 2021, and an increase in same-asset NOI [net operating income] of 3.8 per cent over the prior year. 3.6 per cent growth in net asset value and strong debt metrics with a debt-to-EBITDA [earnings before interest, taxes, depreciation and amortization] ratio of 7.5 times and liquidity of $1.2 billion... On a consolidated basis, George Weston reported revenues of $57 billion, an increase of 6.1 per cent compared to 2021. Adjusted net earnings available to common shareholders were $1.4 billion, an increase of 16.2 per cent compared to 2021. With its two strong operating businesses, George Weston generates strong cash flow from the dividends received from Loblaw, distributions received from Choice Properties and proceeds from participation in Loblaw’s normal course issuer bid.”
Chairman and chief executive officer Galen Weston commented on consumer behaviour:
“When it comes to protein and by that, most of the stuff that’s on their center of plate mostly meat. The highest price sort of per pound is beef, the next highest prices, pork and lamb. And then the next -- sort of the lowest priced animal protein is chicken. And so what we’ve seen is a shift of consumers away from the higher-priced items like beef, much more towards the lower-priced animal proteins like chicken…We’re also seeing customers shift into control brand products… Our no-name products are consistently 25 per cent cheaper than the national brand for equal to or, in some cases, better than quality… And then the third one I’ll share is customers are shifting to discount formats.”
Returning capital to shareholders
The company pays its shareholders a quarterly dividend of 71.3 cents per share, or $2.85 per share yearly, equating to a current annualized yield of 1.7 per cent.
Since 2012, the company has announced at least one dividend increases in each calendar year, typically in May. Its latest dividend hike was announced on May 9 - an 8 per cent dividend hike to its current level of 71.3 cents per share.
In the first quarter, the company repurchased 1.4 million shares.
There are nine analysts who cover this large-cap consumer staples stock, of which five analysts have buy recommendations and four analysts have neutral recommendations.
The firms providing research coverage on the company are: BMO Nesbitt Burns, CIBC World Markets, Desjardins Securities, ISS-EVA, Morningstar, RBC Dominion Securities, Scotia Capital, TD Securities and Veritas Investment Research.
Month-to-date, three analysts have made minor revisions to their target prices.
- CIBC’s Mark Petrie to $209 from $210.
- RBC’s Irene Nattel to $214 from $215.
- Scotia’s George Doumet to $183 from $181.
The consensus earnings per share estimates are $11.06 in 2023, rising 15 per cent to $12.73 in 2024.
Earnings forecasts have been relatively stable for 2023 but have declined for 2024. Three months ago, the consensus earnings per share estimates were $11.15 for 2023 and $13.43 the following year.
The stock is commonly valued using a sum-of-the-parts methodology, ascribing holdco discounts to its ownership positions in Loblaw and Choice Properties REIT. The average one-year target price is $193.13, implying the stock has 17 per cent upside potential over the next 12 months.
Individual target prices provided by eight firms are as a follows in numerical order: $174 (from Morningstar’s Dan Wasiolek), $180, $183, $192, $193, $200, $209 and $214 (from RBC’s Irene Nattel).
Insider transaction activity
Quarter-to-date, there has not been any trading activity in the public market reported by insiders.
Month-to-date, GWL is the worst performing stock in the S&P/TSX consumer staples index. The stock is nearing correction territory, declining 9.7 per cent from its record closing high of $182.36 set on May 1. This swift sell-off has placed the stock in oversold territory. The relative strength index (RSI) reading is 29. Generally, an RSI reading at or below 30 reflects an oversold condition.
Year-to-date, the share price is down 2 per cent, underperforming the S&P/TSX composite index that is up 3.9 per cent.
In terms of key technical support and resistance levels, the stock is sitting near strong technical support between $160 and $164, which is close to its 200-day moving average at $164.05. Failing that, there is support around $140. On a recovery, there is major resistance between $180 and $182, close it its record closing high of $182.36 reached at the beginning of this month.
ESG Risk Rating
According to Sustainalytics, the company has an environmental, social and governance (ESG) risk score of 27.7 as of April 13, 2023. A risk score of between 20 and 30 reflects a “medium risk” rating.
The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.
This report should not be considered an investment recommendation.