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Globe says Empire cut to "neutral" from "outperformer"

2019-07-03 07:28 ET - In the News

The Globe and Mail reports in its Wednesday, July 3, edition that CIBC analyst Mark Petrie has cut Empire to "neutral" from "outperformer." The Globe's David Leeder writes in the Eye On Equities column that Mr. Petrie elevated his share target to $34 from $33. Analysts on average target the Class A shares at $35.13. Mr. Petrie says in a note: "Despite the large headline savings from Sunrise ($200-million in F2019), only $90-million in savings made it to grocery EBITDA [earnings before interest, taxes, depreciation and amortization], even after adding back $45-million in extraordinary items incurred in FQ3. F2019 was impacted by well-telegraphed cost headwinds (particularly minimum wage and freight), so the flow-through should improve, though we believe that F2020 will continue to be marked by higher spending. While Empire will likely contain cost inflation in its legacy business, Farm Boy's higher labour costs will contribute to increased SG&A, as will new investments in innovation and marketing to support FreshCo West and Voila (Empire's brand for Ocado) and maintain momentum in the core business. ... Our valuation is based on a 7-times EBITDA multiple, and we see a discount to Loblaw as justified given the risks."

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