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Food stocks are part of one of the most defensive sectors on the TSX: consumer staples. This defensiveness has made TSX consumer stocks outperform over the last five years, navigating through various economic challenges. But what should we expect now?
Loblaw Companies (TSX:L)
Loblaw is Canada’s largest food retailer and leading pharmacy outlet, with over 2,400 stores across the country and $59.5 billion in revenue in 2023. Over the past five years, Loblaw’s stock price has surged more than 130%, reaching over $156 per share.
Loblaw holds a special place in Canada’s food industry, benefiting from its leading position in food retail and its exposure to the pharmacy business through Shoppers Drug Mart. This dual focus has helped it thrive despite inflationary pressures impacting both the company and consumers. For instance, as a higher-priced grocery alternative in the Canadian market, Loblaw has seen consumers trade down to cheaper food items amid soaring inflation.
Despite these challenges, Loblaw has been thriving by introducing more private-label, less-expensive alternatives for its shoppers. In the first quarter of 2024, its discount banners and private-label brands drove higher store traffic and strong market share gains. Revenue increased by 4.5% to $586 million, and earnings per share (EPS) rose by 14% to $1.47.
Maple Leaf Foods (TSX:MFI)
Maple Leaf Foods is Canada’s largest producer of prepared meats and poultry. With a history spanning over 100 years, Maple Leaf Foods has been a staple for Canadians and a veteran of the TSX index. The company’s longstanding focus on supplying prepared meats has served it well for decades and remains highly defensive.
However, Maple Leaf Foods’ stock hasn’t performed as well as Loblaw’s. The post-pandemic environment left Maple Leaf struggling with inflation, lower volumes, and declining profits and margins. In 2022, the company reported a loss of $0.26 per share, reflecting these challenges.
In response, Maple Leaf Foods has been working hard to innovate, drive new processes, and achieve new efficiencies. These efforts are bearing fruit. In the first quarter of 2024, the company reported a 174% increase in adjusted operating earnings, a 54.6% increase in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), and a 493% increase in free cash flow.
Looking forward, Maple Leaf Foods’ troubles appear to be temporary. The business is stabilizing, and the company is facing a future of moderating inflation and improving pork market conditions. Given these improvements, Maple Leaf Foods is attractively valued, trading at 29 times this year’s expected earnings and 15 times next year’s, with expected growth rates of 100% and 44% in 2025 and 2026.
Both Loblaw and Maple Leaf Foods are top TSX food stocks to watch. Loblaw has demonstrated consistent growth and resilience, while Maple Leaf Foods is poised for a comeback after navigating recent challenges. Investors seeking defensive investments in the consumer staples sector should consider these two strong contenders.
