Loblaw Earnings: Sales Expand on Strength in Discount Banners and Healthcare Services; Shares Rich

No-moat supermarket chain Loblaw’s investments in discount formats and healthcare services are paying off, as the firm delivered 2% top-line growth in the third quarter, despite cooling food price inflation and consumer belt-tightening. Diluted EPS grew 30%, reflecting a one-time benefit from tax recovery related to its financial services business, or up 11% on a comparable basis thanks to efficiency gains and a smaller share base due to buybacks. We plan to tick up our 2024 EPS growth forecast to 11% from 10% to account for the one-time benefit but see no change to our 10-year projections for 3% annual sales growth and operating margins in the 5%-6% range, leaving our CAD 135 per share fair value estimate in place. Shares look overvalued.