Canadian Tire Corp Ltd Valuation – August 2018 $TSE:CTC.A
Company Profile (excerpt from Reuters): Canadian Tire Corporation, Limited is a Canada-based company, which operates through a range of businesses. The Company’s segments include Retail, CT REIT and Financial Services. Its retail segment operates through its retail banners, including Canadian Tire, PartSource, Petroleum, Mark’s, and the various FGL Sports banners. CT REIT is engaged in owning, developing and leasing of income-producing commercial properties. It has a portfolio of properties, which consists of over 300 properties located across Canada totaling approximately 24.7 million square feet of gross leasable area. Financial Services markets a range of Canadian Tire-branded credit cards, including the Canadian Tire Options MasterCard, the Cash Advantage MasterCard and the Gas Advantage MasterCard. It also markets insurance and warranty products, processes credit card transactions for purchases made in Canadian Tire stores and Mark’s stores as well as at Petroleum outlets, and offers financing options.
Downloadable PDF version of this valuation:
ModernGraham Valuation of TSE-CTC.A – August 2018
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $10,951,365,292 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 1.82 | Fail | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Pass | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Pass | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | 104.14% | Pass | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 16.40 | Pass | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 2.12 | Pass | |
| Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor. | ||||
| 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | 1.82 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 0.87 | Pass | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 4. Dividend Record | Currently Pays Dividend | Pass | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $10.08 |
| MG Growth Estimate | 7.51% |
| MG Value | $236.97 |
| Opinion | Undervalued |
| MG Grade | B |
| MG Value based on 3% Growth | $146.11 |
| MG Value based on 0% Growth | $85.65 |
| Market Implied Growth Rate | 3.95% |
| Current Price | $165.27 |
| % of Intrinsic Value | 69.74% |
Canadian Tire Corporation Limited Class A qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $6.72 in 2014 to an estimated $10.08 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.95% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Canadian Tire Corporation Limited Class A revealed the company was trading above its Graham Number of $134.18. The company pays a dividend of $2.6 per share, for a yield of 1.6% Its PEmg (price over earnings per share – ModernGraham) was 16.4, which was below the industry average of 30.61, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-27.87.
Canadian Tire Corporation Limited Class A performs fairly well in the ModernGraham grading system, scoring a B.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$27.87 |
| Graham Number | $134.18 |
| PEmg | 16.40 |
| Current Ratio | 1.82 |
| PB Ratio | 2.12 |
| Current Dividend | $2.60 |
| Dividend Yield | 1.57% |
| Number of Consecutive Years of Dividend Growth | 7 |
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Most Recent Balance Sheet Figures
| Balance Sheet Information | 6/1/2018 |
| Total Current Assets | $8,394,800,000 |
| Total Current Liabilities | $4,608,100,000 |
| Long-Term Debt | $3,312,200,000 |
| Total Assets | $15,313,900,000 |
| Intangible Assets | $1,282,700,000 |
| Total Liabilities | $10,219,800,000 |
| Shares Outstanding (Diluted Average) | 65,489,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $11.20 |
| Dec2017 | $10.67 |
| Dec2016 | $9.22 |
| Dec2015 | $8.61 |
| Dec2014 | $7.59 |
| Dec2013 | $6.91 |
| Dec2012 | $6.10 |
| Dec2011 | $5.71 |
| Dec2010 | $5.42 |
| Dec2009 | $4.10 |
| Dec2008 | $4.60 |
| Dec2007 | $5.05 |
| Dec2006 | $4.31 |
| Dec2005 | $3.98 |
| Dec2004 | $3.53 |
| Dec2003 | $2.95 |
| Dec2002 | $2.53 |
| Dec2001 | $2.23 |
| Dec2000 | $1.89 |
| Dec1999 | $1.89 |
| Dec1998 | $2.09 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $10.08 |
| Dec2017 | $9.21 |
| Dec2016 | $8.22 |
| Dec2015 | $7.47 |
| Dec2014 | $6.72 |
| Dec2013 | $6.07 |
| Dec2012 | $5.49 |
| Dec2011 | $5.12 |
| Dec2010 | $4.78 |
| Dec2009 | $4.44 |
| Dec2008 | $4.51 |
| Dec2007 | $4.30 |
| Dec2006 | $3.77 |
| Dec2005 | $3.34 |
| Dec2004 | $2.89 |
| Dec2003 | $2.48 |
| Dec2002 | $2.21 |
Recommended Reading:
Other ModernGraham posts about the company
| 6 Best Stocks for Value Investors This Week – 3/11/17 | |
| Canadian Tire Corp Limited Valuation – Initial Coverage $TSE:CTC.A |
Other ModernGraham posts about related companies
Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
