November 24, 2016
Empire Company a Good Value Play
Shares of Empire Company (EMP.A-TO) have traded as high as $27.34 and as low as $16.90 over the past 52 weeks. Today the shares trade at $18.47 which is near a 5 year low for the stock. At current prices the stock may be in oversold position and value investors could start accumulating.
Since reaching its 52 week high at the start of 2016 the dividend yield has increased from 1.5% to 2.2%. The dividend remains the highest among peers Loblaws (1.5%) and Metro (1.34%). The management team at Empire has consistently raised the dividend payout at a 7.9% compound annual growth rate and heading into March 2017 if sticking with the status quo we can expect to see another increase.
Since acquiring Safeway in 2013 Empire has faced many challenges integrating the businesses and as a result saw same store sales fall. This among among other challenges and stiffer competition has led to write downs which have disappointed investors and magnified the stock sell off. Management continues to work on improving these areas and in in the past year has named a new CEO to help move the company forward.
Empire’s market cap sits just above $5 billion which is rather low for a company with over $24 billion in sales annually. Metro on the other hand has a market around $10 billion but does almost half as much in revenue per year. Even Loblaws which brings in just under twice as much revenue as Empire has a market cap at $27 billion, over 5 times larger.
I have already begun to see some changes at my local Sobeys and other Empire branded grocery outlets. With the approval of liquor sales at grocery stores in Ontario my local Sobeys is now selling liquor. The store no longer operates on a 24 hour schedule but remains competitive with the local No Frills nearby. I’m also happy with the changes to Air Miles redemption at the locations as this provides more opportunity for me to collect points under one card instead of having multiple accounts per location.
Looking into 2017 and beyond I think we’ll start to see more positive news come forward as the company tackles current issues. Empire represents a number of well known grocery chain stores including Sobey’s, Foodland, IGA, Freshco, and Safeway. The company is also involved in pharmacy, real estate, as well as retail fuel locations which helps provide a diversified business structure.
My 12 to 24 month price target for this company is $30-$40.
Disclosure: I am long Empire Company.