Analyzing Empire, Ballard Power Systems, and Canadian Pacific: Recommendations and Price Movements

2023-06-20 21:53:07

Canadian Pacific Rail Carrier Kansas City will hold Investor Days June 27-28 in Kansas City. (Photo: 123RF)

What to do with the titles of Empire, Ballard Power Systems and Canadian Pacific? Here are some recommendations from analysts likely to move prices soon. Note: the author may have a totally different opinion from that expressed by the analysts.

Empire (EMP.A, $34.84): Inflation and intensifying competition remain challenges

The owner of the Sobeys and IGA grocery chains, Empire Company, will release financial results for the fourth quarter of its 2023 fiscal year, which ended May 6, on June 22.

Desjardins analyst Chris Li said he expects results will continue to reflect the challenges of high inflation in the grocery industry, which is pushing customers toward private label products. “We are seeing increased competition and dilution from e-commerce activities, partially offset by Project Horizon benefits, which are not being appreciated to their full potential,” he says.

With Project Horizon, launched in 2020, Empire wanted to boost its earnings before interest, taxes, depreciation and amortization (EBITDA) by $500 million (M$) by the end of its 2023 fiscal year.

“The valuation of the Empire title is lower than that of its peers, which reflects the challenges the industry faces. The moderation of inflation is the key for financial results to improve, which will not occur before the second half of 2023. In this sense, patience is required,” said the analyst.

The latter expects Empire to report adjusted earnings per share of $0.67, while analysts’ consensus is at $0.68.

“Comparable store sales growth (open for more than a year) excluding fuel sales should reach 2.5%,” he said, recalling that inflation in the food component was 9 .8%. A drop in transaction volumes will be felt, however, since Sobeys and IGA grocery stores are less exposed to low-priced products.

Same-store sales growth for Loblaw (quarter ended March 25) and Metro (quarter ended March 11) reached 4.8% and 5.8%, respectively, according to Chris Li.

He adds that profit margins are expected to increase by 30 percentage points thanks to the effects of Project Horizon, partly offset by increased competition.

“Selling, general and administrative expenses should increase by 4.5% over one year, while adjusted EBITDA should amount to $561 million,” he estimates.

For fiscal 2024, the analyst expects earnings per share to grow 9%, which would be similar to what is expected at Loblaw and Metro. He reiterates his buy recommendation on Empire stock and its one-year target price of $41.