Metro Earnings: Profit Growth to Resume as New Distribution Center Ramps up Utilization; Shares Rich

We plan to maintain our CAD 70 fair value estimate for no-moat Metro after absorbing mixed fiscal 2024 results. Reported sales rose 2.4% to CAD 21 billion, missing our 3% sales growth estimate, while adjusted earnings per share of CAD 4.30 edged our CAD 4.26 forecast as repurchases led to a lower share count than our estimate. Now that the new Quebec distribution center is fully operational, we expect the duplicate costs that had pressured Metro in 2024 will ease steadily in the coming quarters, providing a lift to profits. As such, we expect Metro to increase sales and adjusted EPS by 3% and 10%, respectively, in fiscal 2025. Our 10-year forecasts for low-single-digit top-line growth and operating margins in the 6% to 7% range remain in place, and we view shares as overvalued.