Group Jean Coutu: An Update For The Patient Investor

This is just a sample. The full article is available at Seeking Alpha.
Reposted from Seeking Alpha
By Brian Langis

Note: Dollar amounts are in Canadian $ unless mentioned otherwise. USD-CAD 1.1228 Price of 1 USD in CAD

Group Jean Coutu (OTCPK:JCOUF) (PJC) was one of my better investments last year. My initial research article, Group Jean Coutu – An Opportunity For The Patient Investor, I made the case for investing in PJC. It’s much easier to pick a winner when management tells us exactly what they are going to do when they announce a capital return plan upward of $500 million in share buybacks and special dividends. This article is an update; therefore I suggest reading the original research to have a better understanding of PJC.

Investment Summary

Please note that the actual publishing date was October 24, 2013 but it was written before. The actual returns described below represent a full year but is three days short of the publishing date.

PJC1PJC.A +37.74% vs. JCOUF +21.33% vs. TSX +10%, Oct 22, 2013 – Oct 21, 2014. Source: Google Finance

pjc2

If you held the Canadian version, PJC.A, your investment is up 42% including dividends. This is superior to the 10% the TSX provided and my own initial valuation. If you held the American version, JCOUF, your returns were negatively impacted by the drop in the Canadian dollar. However, with a 26% return including dividends, it’s still respectable and superior to the S&P 500. PJC also increased their quarterly dividend 17.6% from $0.085 to $.10.

My approach to investing in PJC is similar to the one I would take if I would be buying a private enterprise. PJC has the characteristics of what I’m looking for: a good old cash rich drug store retailer with solid reliable free cash flow, no debt, modest growth, heavy insider ownership, long-term potential, and that provides goods and service essential to the community. In today’s investing environment, PJC would classify under the boring investment tab and that’s not a bad thing.

With a 40%+ return, you would have thought that PJC is a sexy high flyer stock. Anybody that is familiar with the company knows that’s certainly not the case. Group Jean Coutu is a snail. It’s slow, but steady and consistent. PJC’s lack of an “aggressive” growth plan really bugs analysts. When you listen to the analysts’ conference call, they always sound so disappointed that management didn’t declare some big splashy news or some kind of enormous acquisition. It is indeed for the patient investor. The analysts also weren’t impressed with last year’s massive capital return program because it wasn’t sexy enough. It’s mind boggling that the stock price lagged for a while after they repurchased $400 million in shares. PJC did make the analysts happy at one point when it went down the “flashy road” in 2004 with the mega acquisition of Eckerd drugstores in the U.S. That turned out to be a disastrous blunder. Now PJC is buying one store at the time. Francois Coutu, the CEO, wants to get to 500 stores within five to 10 years, both by buying independents and building new stores. I agree that it is a torture to see PJC open only a few locations a year with a little bump in same-store-sales (SSS), but I’d rather be safe and steady than reckless.

PJC Financial Summary

PJC3

Full article at SA.

 

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