Company Reports

We plan to maintain our CAD 175 per share fair value estimate for no-moat George Weston after absorbing its second-quarter results, including sales and adjusted EBITDA up 1.5% and 4.2%, respectively. As food CPI dipped below 2% in Canada and the normalizing trends will likely hold, we expect main subsidiary (over 90% of total sales) no-moat Loblaw’s sales trajectory will revert to the low-single-digit range, consistent with historical averages. George Weston’s other subsidiary, Choice Properties, should also have moderating sales given macro headwinds and significant exposure to tenants associated with Loblaw. On a consolidated basis, our 10-year forecast for George Weston to deliver low-single-digit sales growth and a 6% adjusted operating margin are unchanged, and we view shares as overvalued.

We plan to maintain our CAD 175 per-share fair value estimate for no-moat George Weston after analyzing its first-quarter results, with sales and adjusted EBITDA up 5% and 7% respectively. We attribute the solid performance to that of its main subsidiary no-moat Loblaw (over 90% of total sales and profits), which has sharpened the value focus in grocery and pharmacy retail to appeal to financially constrained Canadian shoppers. The other subsidiary, Choice Properties, also managed to deliver steady revenue and profit growth despite macro headwinds thanks to its strategic focus on necessity-based retailers and logistics providers. We maintain our 10-year average projections for low-single-digit sales and a 6% adjusted operating margin, and view shares as overvalued.

As the majority shareholder of Canada’s largest retailer Loblaw and leading real estate investment trust Choice Properties, George Weston capitalizes on resilient consumer demand for groceries and pharmacy services, and benefits from synergies between the two operating subsidiaries. We view its financial performance as anchored by steady dividends from the retail and property arms, but we don’t think the firm has a durable competitive edge based on our no-moat rating on Loblaw, which makes up the bulk of revenue and profits for the holding company.

We don’t plan any material changes to our CAD 168 fair value estimate for no-moat George Weston after absorbing mixed 2023 results, with sales growth of 5.4% edging our estimate (5.2%), but the adjusted EBITDA increase of 6.1% missing our 8.5% projection. We think main subsidiary no-moat Loblaw (over 90% of George Weston sales and EBITDA) has preserved its competitive standing in grocery and pharmacy retail by focusing on private-label offerings, discount formats, and wellness-focused products and services while investing prudently in digital marketing, loyalty programs, and e-commerce capabilities. Meanwhile, the disciplined approach of its other subsidiary, Choice Properties, in maintaining a high-quality client base of necessity-based retailers and logistics providers has helped maintain steady revenue and income growth despite a soft macro backdrop. We see no need to change our 10-year projections for low-single-digit sales compound annual growth rate and a 6% adjusted operating margin on average and view shares as overvalued.

We don’t plan a material change to our CAD 168 fair value estimate for no-moat George Weston, considering that third-quarter results from no-moat Loblaw, which provides 99% of revenue, matched our forecasts: Sales advanced 5% and adjusted EPS rose 12%. George Weston shares trade in a range we consider to be fully valued, and as such, we’d suggest investors remain on the sidelines.

As the majority shareholder of Canada’s largest retailer Loblaw and leading real estate investment trust Choice Properties, George Weston capitalizes on resilient consumer demand for groceries and pharmacy services, and benefits from synergies between the two operating subsidiaries. We view its financial performance as anchored by steady dividends from the retail and property arms, but we don’t think the firm has a durable competitive edge based on our no-moat rating on Loblaw, which makes up the bulk of revenue and profits for the holding company.

We believe Canadian grocers Loblaw, Metro, and Loblaw’s parent George Weston, have failed to build a durable competitive edge, given the commoditized nature of food retail where low prices remain the key point of differentiation. We’ve tweaked our valuations but see value in George Weston’s shares.

Having completed the sale of its bakery business (Weston Foods) in early 2022, George Weston is left with an established and meaningful presence across Canadian retail (Loblaw) and real estate (Choice Properties). The businesses tout varying degrees of scale and, while we don’t believe any of them boast moatworthy competitive advantages, we see some semblance of a symbiotic relationship between them. We view the combined entity continuing to navigate its dynamic marketplaces, aided by the strategic guidance and financial flexibility of George Weston’s corporate leadership.

After digesting no-moat George Weston's fiscal 2023 second-quarter results with little to unpack—as Loblaw's results (99% of sales) were announced last week—we don't plan a material change to our CAD 179 fair value estimate beyond time value. With shares sliding nearly 15% since its first-quarter earnings (May 9)—which strikes us as curious, given Loblaw's continued strength in both its retail and drug arms—we see opportunities for investors to stock up on this name. Despite the competitive landscape of the Canadian grocery space, we believe Loblaw's robust private label and personalized loyalty benefits, along with the operator's ongoing efforts to optimize its store network and distribution centers, should help it maintain its market-leading position. Thus, our long-term prospects for low-single-digit average top-line growth and mid-single-digit operating margins remain intact.

Having completed the sale of its bakery business (Weston Foods) in early 2022, George Weston is left with an established and meaningful presence across Canadian retail (Loblaw) and real estate (Choice Properties). The businesses tout varying degrees of scale and, while we don’t believe any of them boast moatworthy competitive advantages, we see some semblance of a symbiotic relationship among them. We see the combined entity continuing to navigate its dynamic marketplaces, aided by the strategic guidance and financial flexibility of George Weston’s corporate leadership.

No-moat George Weston’s first-quarter marks trickled in with few surprises, given 99% of its revenue is derived from no-moat Loblaw (reported May 3). We don’t plan a material change to Weston’s CAD 174 fair value estimate and view shares as appropriately valued.

Having completed the sale of its bakery business (Weston Foods) in early 2022, George Weston is left with an established and meaningful presence across Canadian retail (Loblaw) and real estate (Choice Properties). The businesses tout varying degrees of scale and, while we don’t believe any of them boast moatworthy competitive advantages, we see some semblance of a symbiotic relationship among them. Aided by the strategic guidance and financial flexibility of George Weston’s corporate leadership, we see the combined entity continuing to navigate its dynamic marketplaces.

With no-moat Loblaw representing 99% of no-moat George Weston’s total revenue and having already announced its fourth-quarter results, there was limited fresh information for investors to consume in the company’s earnings release. We don’t plan a material change to Weston’s CAD 174 fair value estimate and view shares as being appropriately valued.

Having completed the sale of its bakery business (Weston Foods) in early 2022, George Weston is left with an established and meaningful presence across Canadian retail (Loblaw) and real estate (Choice Properties). The businesses tout varying degrees of scale and, while we don’t believe any of them boast moatworthy competitive advantages, we see some semblance of a symbiotic relationship among them. Aided by the strategic guidance and financial flexibility of George Weston’s corporate leadership, we see the combined entity continuing to navigate its dynamic marketplaces.

Given that no-moat Loblaw consists of 99% of no-moat George Weston’s total revenue and has already announced its third-quarter results, there is limited novel information for investors to digest. Revenue improved 8.2% in the quarter, boosting the firm’s year-to-date revenue spike to 5% (CAD 43 billion) and slightly outpacing our 3.5% fiscal-year forecast (CAD 54.8 billion). We believe Loblaw’s suite of private-label offerings and focus on personalized promotions (PC Optimum) offered price-conscious consumers value in combating an 11% CPI spike in food purchased from stores during the quarter, lifting food retail same-store sales by 7%. Moreover, Loblaw’s drug retail segment benefited from heightened seasonal demand in the cold and cough (RSV, COVID-19, flu) and beauty aisle, as consumers have returned to in-person activities. In turn, the favorable mix contributed to a 10-basis-point benefit in adjusted EBITDA margin to 11.1%, bringing George Weston’s year-to-date margin to 11.6% (slightly ahead of our 11.1% 2022 projection). All in all, the firm was able to navigate heightened input costs in the quarter, and we surmise Loblaw should be able to continue to drive volume (net increase in the quarter) through its portfolio of discount banners and versatile pricing initiatives, such as price freezes on select private-label goods. We plan to bump our full-year sales and EBITDA outlook modestly to account for the recent outperformance, leading to a low-single-digit hike to our George Weston CAD 159 per share fair value estimate.

Having completed the sale of its bakery business (Weston Foods) in early 2022, George Weston is left with an established and meaningful presence across Canadian retail (Loblaw) and real estate (Choice Properties). The businesses tout varying degrees of scale and, while we don’t believe any of them boast moatworthy competitive advantages, we see some semblance of a symbiotic relationship among them. Aided by the strategic guidance and financial flexibility of George Weston’s corporate leadership, we see the combined entity continuing to navigate its dynamic marketplaces.

Having completed the sale of its bakery business (Weston Foods) in early 2022, George Weston is left with an established and meaningful presence across Canadian retail (Loblaw) and real estate (Choice Properties). The businesses tout varying degrees of scale and, while we don’t believe any of them boast moatworthy competitive advantages, we see some semblance of a symbiotic relationship among them. Aided by the strategic guidance and financial flexibility of George Weston’s corporate leadership, we see the combined entity continuing to navigate its dynamic marketplaces.

No-moat George Weston’s second-quarter marks largely mirror those of no-moat Loblaw’s, given 99% of its sales contribution is from the Canadian retailer. George Weston’s revenue checked in at CAD 12.98 billion (up 2.7%), generally in line with our full-year top-line growth forecast of 3.4% (given higher sales in the back half). Improved profitability failed to surprise (up 60 basis points to 12.2%), aided by favorable mix shifts in drug retail (28.8% of sales at Loblaw). Amid Canadian consumers’ constrained pocketbooks, we are encouraged by Loblaw’s extensive offerings at its value-tiers, well-perceived private labels, and PC Optimum loyalty program (which enables savings of up to 10% on grocery bills, per management). In addition to the grocery retail business, Loblaw’s continued momentum in drug retail strikes us as astute. Upon acquiring Lifemark Health Group, a rehabilitation services provider with more than 300 clinics across Canada, in May, Loblaw started opening Canada’s first walk-in clinic in June. We think these moves dovetail well with Loblaw’s existing services in drug retail and should help drive further foot traffic. While immaterial to the consolidated result, Choice Properties’ healthy occupancy rates (97.6% in the quarter) in its diversified portfolio continue to give us confidence in the symbiotic relationship within George Weston’s business. Taken together, despite the intense competition we expect ahead, we think the above factors should continue to drive stable top-line growth, which we model at a low-single-digit rate longer term.

Having completed the sale of its bakery business (Weston Foods) in early 2022, George Weston is left with an established and meaningful presence across Canadian retail (Loblaw), and real estate (Choice Properties). The businesses tout varying degrees of scale and, while we don’t believe any of them boast moatworthy competitive advantages, we see some semblance of a symbiotic relationship among them. Aided by the strategic guidance and financial flexibility of George Weston’s corporate leadership, we see the combined entity continuing to navigate its dynamic marketplaces.

With no-moat Loblaw (99% of George Weston total revenue) having already reported its first-quarter results, there was little new information for investors in no-moat George Weston’s results, especially since the company does not hold a conference call. While we might slightly increase our 2022 margin forecast, we do not plan a meaningful change to our George Weston CAD 155 fair value estimate, leaving shares appropriately valued.