Subway (TSE: MRU) stocks have finally pulled back recently, now more 8% from its all-time high. While this may not seem like much of a pullback compared to the many stocks that were crushed last year, it is a notable drop for such a stable Canadian grocery and drug company. in a previous article, we noted that MRU shares did not have much upside as they were near their all-time high and a bit overvalued. However, Metro shares appear reasonably priced now and could moderately reward investors in the long run, but we remain neutral as we don’t see a compelling opportunity.
However, following the drop and a new earnings report, the stock is worth checking out.
Metro is not affected by the worsening economy
Last week, Metro reported its First Quarter Fiscal 2023 Earnings Results, with numbers that exceed estimates. Its sales grew 8.2% to C$4.67 billion, while its adjusted diluted earnings per share grew 13.6% to C$1. Additionally, the company’s gross margin was relatively flat, falling just 30 basis points year-over-year to 19.6% due to higher costs. In general, it seems that Metro easily navigates inflation.
Additionally, the company increased its dividend by 10% – now yielding 1.5% – suggesting that management is confident in the future of the company.
Metro shares look pretty valued right now
Following Metro’s recent crash, the stock now looks fairly valued. Proof of this assumption is its 0.84x futures ask price multiple, which is close to its 0.81x five-year average. Additionally, its forward EV/EBITDA multiple stands at 10.6x compared to its five-year average of 10.9x.
In addition, Metro has a forward earnings multiple of 17.2x, implying a 5.8% earnings yield. In our opinion, this is a fair earnings performance considering that his earnings are expected to grow in the mid-single digits for the foreseeable future and considering the stable/secure nature of his business. A stable business should generally require less return to attract investors because they are taking less risk.
Is Metro a good stock to buy, according to analysts?
According to analysts, Metro shares are entered as a Hold based on one Buy and seven assigned Holds in the last three months. He MRU average share price target Cdn$82.27 implies a potential upside of 14.1%.
Food to go
While Metro shares are down a bit, their valuation still doesn’t leave a lot of upside potential for investors looking for high returns. However, for risk-averse investors, the stock may provide modest long-term gains, as Metro is an established grocery store in Canada and demand for groceries is essentially unaffected by recessions.
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