Canadian Retail Stocks

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

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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.

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