Noah Zivitz

Managing Editor, BNN Bloomberg

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Loblaw Companies Ltd. is still the top name to own in Canada's grocery sector thanks to an arsenal of assets that should thrive in these inflationary times, according to an analyst at RBC Capital Markets.

"In our view, Loblaw should disproportionately benefit from its sector-leading penetration in discount, private label, and loyalty as consumers seek value to offset rising inflation," wrote Irene Nattel in a note to clients Thursday.

Loblaw's empire includes the No Frills discount supermarket chain and the No Name private-label brand — both of which have already been highlighted by company management as thriving.

During a conference call with analysts in May after reporting first-quarter results, Loblaw Chairman and President Galen G. Weston said he was "particularly encouraged" by the performance of Loblaw's discount business, which accounts for about 60 per cent of the company's grocery sales. He added that sales were at an all-time high in the Loblaw's private label offerings.

In addition to those business lines that are attracting greater demand amid scorching-hot inflation, Nattel also noted the importance of Shoppers Drug Mart and Loblaw's broader pharmacy operations.

"Outlook for the second quarter and beyond remains strong with return to work favouring high-margin front-of-store categories, recovery in prescription counts, and COVID symptom management; second-quarter upside from an unseasonable flu spike," she wrote.

Loblaw has been one of the Toronto Stock Exchange's stars of late, with its shares up 14 per cent this year; and they've rallied 78 per cent since the March 2020 — around the time the pandemic took hold and triggered a significant shift in consumption habits. Even after those gains, Nattel said she thinks Loblaw still offers compelling value since the company is "in the early innings of leveraging loyalty and data analytics to drive top line growth and [gross margins]."

Nattel rates Loblaw's stock outperform (the equivalent of a buy), and has a price target of $133.00 per share, suggesting 13 per cent upside from Thursday's closing price on the TSX.