George Weston Earnings: Sales Growth Normalizes on Cooling Food Price Inflation

We plan to maintain our CAD 175 per share fair value estimate for no-moat George Weston after absorbing its second-quarter results, including sales and adjusted EBITDA up 1.5% and 4.2%, respectively. As food CPI dipped below 2% in Canada and the normalizing trends will likely hold, we expect main subsidiary (over 90% of total sales) no-moat Loblaw’s sales trajectory will revert to the low-single-digit range, consistent with historical averages. George Weston’s other subsidiary, Choice Properties, should also have moderating sales given macro headwinds and significant exposure to tenants associated with Loblaw. On a consolidated basis, our 10-year forecast for George Weston to deliver low-single-digit sales growth and a 6% adjusted operating margin are unchanged, and we view shares as overvalued.