Why is George Weston Stock so Cheap?

Loblaws without the bread business and helping of real estate serves up a compelling opportunity.

Andrew Willis 8 September, 2023 | 4:51AM
Facebook Twitter LinkedIn

 

 

Interested in more cheap stocks? Check out our recent episode on Wayfair stock

Key Takeaways for George Weston Stock

  • Loblaws faces rising food and labour costs and fierce competition
  • George Weston is also an investment in a symbiotic relationship between Loblaws and real estate with Choice Properties
  • We see this as a no-moat business, although Loblaws still maintains the most expansive retail network in Canada

 

Andrew Willis: Recently, we’d talked about how high grocery prices didn’t necessarily mean grocery store stocks made great investments at the moment. Investing in Loblaw stock, for example, meant more direct exposure to rising food and labour costs…

But investing in the most expansive retail store network in Canada, in addition to properties that house dollar stores, restaurants and apartments that benefit from a relationship with Loblaws, is a different matter -  and it’s led to higher earnings per share since 2021.

Invest in Grocery Stores and Leverage the Land

Investing in George Weston stock (WN) versus Loblaws stock is more like investing in Loblaws and its wider ecosystem with Choice Properties. Senior equity analyst Dan Wasiolek did point out that Choice Properties has made a concerted effort to diversify outside of that ecosystem, with industrial and commercial properties… although Loblaws probably makes for a great tenant.

For Morningstar, I’m Andrew Willis.

bulls George Weston Bulls Say

  • Loblaw’s scale as Canada’s largest grocer confers procurement advantages and also bolsters the firm’s digital strategy through greater transactions and volume.
  • Choice benefits from stable tenancy and cash flows at Loblaw, which enhances its financial flexibility to further diversify its real estate footprint, supporting its industrial property endeavors.
  • The sale of Weston Foods provided George Weston with CAD 1.5 billion to return to shareholders.

bears George Weston Bears Say

  • Loblaw competes in a commoditized industry that necessitates persistent reinvestment.
  • As Choice seeks to expand to other areas of commercial real estate, it may experience lower occupancy rates that could hamper margins.
  • The company is exposed to supply chain and inflation headwinds that linger from the pandemic and the humanitarian crisis in Ukraine.

Get the Latest Stock Insights in Your Inbox

Subscribe Here

Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
George Weston Ltd181.17 CAD-1.51Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy       Disclosures        Accessibility