Loblaw Companies Limited (TSX:L) reported its quarterly earnings last week, on July 26. The major grocery retailer showed strong results with net income soaring an impressive 31% year over year to $508 million for the period ending June 17. The results were a little inflated due to a non-recurring charge that its financial services business reported a year ago, totaling $111 million.
However, the business still did well amid inflation. Same-store sales rose by 6.1% across its major brands, including Real Canadian Superstore. Food retail saw a particularly strong improvement as a year ago same-store sales growth was just 0.9%. Overall, it was a strong quarter for Loblaw as revenue of $13.7 billion was up 6.9% year over year, with e-commerce sales jumping by nearly 14% from the prior-year period.
Although it was a strong period for the company, that doesn’t mean the stock is a necessarily great buy right now. At 20 times earnings, investors are paying a bit of a premium for the grocery retailer; for that kind of multiple, investors would normally expect to see stronger, more consistent growth.
Loblaw does pay a decent dividend that yields 1.5% but that too may not be enough to sweeten the deal for investors as there are many other high-yielding stocks out there to choose from.
Year to date, the stock is down around 2%. But the value in the stock is that it isn’t volatile and can be a stable place to invest in and collect a modest dividend.
Loblaw is a good option for risk-averse investors as it can generate perform well even amid challenging economic conditions. However, in the long run, it may lag behind other, more promising growth stocks.