Morningstar | Solid 2018 Leaves Our Canadian Tire Outlook Intact; Investors Should Await a Better Entry Point
We do not anticipate significantly changing our CAD 150 fair value estimate for no-moat Canadian Tire after it posted fourth-quarter results. With full-year marks near our expectations, we do not plan to alter our 10-year outlook, which calls for low- to mid-single-digit revenue growth and 12%-13% adjusted EBITDA margin, on average. We suggest investors await a greater margin of safety before building a position in a retailer facing a competitive onslaught.In 2018, Canadian Tire posted 6% revenue growth against a 12% adjusted EBITDA margin, in line with our expectations. The legacy retail units, which combine for just over 70% of pro forma sales, were also near our forecast, with the namesake stores, FGL/SportChek, and Mark's posting 1.7%, 0.8%, and 2.6% respective revenue growth against our 1.5%, 0.3%, and 3.0% respective targets.
Management reiterated its plans to pursue additional consumer brand acquisitions in 2019, building on an active 2018 that was highlighted by the midyear purchase of Helly Hansen. We have a generally favorable view of the approach, though we continue to question the Helly Hansen deal as it came at a steep price and did not add to the roster of brands exclusively sold at Canadian Tire banners (which we believe can differentiate the retailers' assortments).
We suspect Canadian Tire will be hard-pressed to improve results materially beyond 2018's marks as the competitive environment should remain relentless. With Amazon now offering free one-day delivery to Prime members in 19 Canadian cities (for a select but growing assortment), we expect conventional retailers will have to combine a variety of fulfillment options and low prices to even maintain their standing. While we believe Canadian Tire's physical stores can underpin a meaningful omnichannel effort, the fulfillment cost and price pressure should leave little room for margin growth. So, we do not believe the firm's iconic brand translates into a moatworthy competitive edge.
Canadian Tire Corporation comprises three main business operations, which provides a range of retail goods and services. Co.'s three main business operations are: Retail, which is conducted through a number of banners, including Canadian Tire, Canadian Tire Gas (Petroleum), Mark's, PartSource, and various FGL Sports banners; CT REIT, which is a real estate investment trust engaged in owning, developing and leasing commercial properties; as well as Financial Services, which markets a range of Canadian Tire-branded credit cards, insurance and warranty products and processes credit card transactions with respect to purchases made in Canadian Tire associate stores and Petroleum outlets.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.