Why is Canadian Tire Stock so Cheap?

This may be a bet if you believe Canadian Tire Money has value.

Andrew Willis 17 November, 2023 | 4:19AM
Facebook Twitter LinkedIn

 

 

Interested in other cheap stocks? Check out our recent episode on GM

Key Takeaways for Canadian Tire Stock:

  • Canadian Tire is building out its loyalty program as intense competition grows from online retailers and consumers reduce non-essential purchases – recently contributing to a layoff of 3% of staff.
  • The re-purchase of a 20% stake in Canadian Tire Financial comes as we expect in-store financing and credit cards to drive a rise in receivables.
  • Most Canadian Tire money issued goes to Canadian Tire Financial customers, supporting loyalty in the retail segment – as online competition picks up.

 

Andrew Willis: When you think about Canadian Tire (CTC.A), do you think about GICs or TFSAs? Then why, when Canadian Tire is facing competitive strain from online retailers, is the company making a billion-dollar bet on Canadian Tire Financial?

Canadian Tire Money may be the clue, as 75% of it every year goes to Canadian Tire Financial Services customers and its 2.3 million active credit card holders.  After buying back a 20% share from Scotiabank, the company is looking to expand its loyalty and credit card programs – which makes sense given that senior equity analyst David Swartz anticipates receivables growth driven by in-store financing.

Canadian Tire Still Growing But Online Sales Need to Expand

Canadian Tire doesn’t need to entirely rely on customers borrowing money for gifts ahead of the holidays, as despite the intense competition, we still see 2-3% long-term top-line growth for the banner stores. However, in the new year, we hope more of that Canadian Tire money will be spent online.

For Morningstar, I’m Andrew Willis.

bulls Canadian Tire Bulls Say

  • An expanded web presence and increasing use of digital tools in-store should help the company improve the in-store experience while enabling it to compete more effectively against digital rivals.
  • Canadian Tire's stable of owned brands that are exclusively sold in its stores differentiates its assortment from digital and physical retail rivals.
  • Canadian Tire’s proximity to customers via its dense store network creates an opportunity to build its presence in click-and-collect digital sales.

bears Canadian Tire Bears Say

  • Competition is intensifying, with multinational digital sellers (such as Amazon) rapidly expanding in Canada and American brick-and-mortar retailers looking north for growth.
  • The company is affected by macroeconomic instability, and the finance arm bears meaningful subprime credit exposure.
  • Fuel prices affect sales directly (through Canadian Tire’s vehicle fuel sales effort) and indirectly (through its stores located in Alberta, where the energy sector accounts for more than 25% of economic output).

Get the Latest Stock Insights in Your Inbox

Subscribe Here

Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Canadian Tire Corp Ltd Class A143.06 CAD-0.77Rating

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