Q: Does the earnings release today from Canadian Tire cause concern with the stock falling almost 5 percent? Is the stock a hold or buy at these levels? If actually a sell, what other opportunities in consumer discretionary should be considered to replace this holding?
5i Research Answer:
While sales slipped a bit overall, (3.6%), EPS still slightly beat expectations. The stock drop primarily reflects the fact the company is withdrawing guidance, citing a deteriorating consumer environment. Inflation and interest rates do have a toll, and online merchants have been taking market share. Still, we do not think the company is doing anything wrong, and this is not the first slowdown it has seen. At 10X earnings with a secure 4% dividend, we would be fine holding today, for an eventual consumer recovery and/or lower rates/inflation. We might wait on adding more, however. But it is up on the year (17%) and analysts' consensus still calls for decent earnings growth in 2024.