Why Empire Company Limited Soared 14.48% on Thursday

Empire Company Limited (TSX:EMP.A) soared 14.48% on Thursday following its Q1 2018 earnings release. What should you do now? Let’s find out.

| More on:
grocery store

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Empire Company Limited (TSX:EMP.A), one of the largest owners and operators of grocery stores in Canada, announced its fiscal 2018 first-quarter earnings results before the market opened on Thursday, and its stock responded by soaring 14.48% in the day’s trading session. Let’s break down the quarterly results and the fundamentals of its stock to determine if this could be the start of a sustained rally higher and if we should be long-term buyers today.

The results that ignited the rally

Here’s a quick breakdown of 10 of the most notable financial statistics from Empire’s 13-week period ended on August 5, 2017, compared with its 13-week period ended on August 6, 2016:

Metric Q1 2018 Q1 2017 Change
Sales $6,273.2 million $6,186.6 million 1.4%
Gross profit $1,531.0 million $1,490.8 million 2.7%
Adjusted EBITDA $278.8 million $243.1 million 14.7%
Operating income $125.2 million $126.6 million (1.1%)
Adjusted net earnings $87.5 million $73.6 million 18.9%
Adjusted earnings per share (EPS) – fully diluted $0.32 $0.27 18.5%
Book value per common share $13.57 $13.49 0.6%
Free cash flow $119.7 million $455.6 million (73.7%)
Same-store sales growth (decline) 0.5% (1.8%) 230 basis points
Same-store sales growth (decline) excluding fuel 0.5% (1.2%) 170 basis points

What should you do now?

Empire kicked off fiscal 2018 with a very strong first-quarter performance, and the results crushed the consensus estimates of analysts polled by Thomson Reuters, which called for EPS of $0.22 on revenue of $6.18 billion, so I think the large pop in its stock was warranted. I also think the stock still represents an attractive long-term investment opportunity for three fundamental reasons.

First, it’s back on the path of growth. Empire’s adjusted EPS dropped 18.5% to $1.50 in fiscal 2016 and it plummeted 53.3% to $0.70 in fiscal 2017 as the company faced numerous challenges, including a “softening sales trend,” but it achieved 18.5% growth to $0.32 in the first quarter of fiscal 2018, and analysts currently expect it to achieve 22.9% growth to $0.86 in the full year of fiscal 2018. The growth is expected to continue in fiscal 2019, with current estimates calling for 51.2% growth to $1.30, and even though it would still be well below the $1.50 it earned in fiscal 2016, it does appear that the company’s days of negative growth are over.

Second, it’s undervalued based on its growth. Even after the +14% pop, Empire’s stock trades at 26.3 times fiscal 2018’s estimated EPS of $0.86 and just 17.4 times fiscal 2019’s estimated EPS of $1.30; these multiples may seem high at first glance, but I think they are actually very attractive given its current high-double-digit percentage earnings-growth rate.

Third, it’s a dividend-growth superstar. Empire currently pays a quarterly dividend of $0.105 per share, equal to $0.42 per share annually, which gives it a yield of about 1.9%. A 1.9% yield is far from high, but what Empire lacks in yield it makes up for in growth; it has raised its annual dividend payment for 22 consecutive fiscal years, and its 2.4% hike in June has it positioned for fiscal 2018 to mark the 23rd consecutive fiscal year with an increase.

With all of the information provided above in mind, I think Foolish investors should consider initiating long-term positions in Empire today with the intention of adding to those positions on any significant pullback in the future.

Should you invest $1,000 in Empire Company right now?

Before you buy stock in Empire Company, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Empire Company wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stock mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Investing

A shopper makes purchases from an online store.
Tech Stocks

Buy the Dip on the Return of Recession Stocks?

If a recession comes back, there are some stocks that could fair well afterwards. And this is one of the…

Read more »

RRSP Canadian Registered Retirement Savings Plan concept
Retirement

Here’s the Average Canadian TFSA and RRSP at Age 60

Many Canadian retirees have tens of thousands invested in ETFs like the iShares S&P/TSX 60 Index Fund (TSX:XIU).

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Here’s Exactly How a $20,000 TFSA Could Potentially Grow to $200,000

Index funds like the iShares S&P/TSX Capped Composite Index (TSX:XIC) are tax free in a TFSA.

Read more »

dividend growth for passive income
Investing

5 Canadian Growth Stocks to Buy and Hold for the Next 15 Years

These Canadian stocks have tremendous long-term growth potential, making them five of the best investments you can buy and hold…

Read more »

Man holds Canadian dollars in differing amounts
Stocks for Beginners

Cash Is King? Think Again During Today’s Market Dip

Sure, cash is great, but during a market dip investors may want to consider using some of the cash to…

Read more »

grow money, wealth build
Stocks for Beginners

How I’d Build a $15,000 Portfolio for Income and Growth With Canadian Value Stocks

Looking for some Canadian value stocks to buy without breaking the bank? Here's a trio to consider buying this month.

Read more »

Dividend Stocks

How I’d Invest $6,000 in Canadian Real Estate Stocks to Build Lasting Wealth

Canadian REITs on sale! See how grocery-anchored retail properties offering 9% yields could turn $6,000 into lasting wealth despite US…

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Investing

3 Canadian Value Stocks I’d Hold in My TFSA Through Market Volatility

Given their healthy growth prospects and discounted stock prices, these three value stocks would be ideal additions to your TFSA.

Read more »