Metro: Limited Room for Upside Growth - UBS

Grocery company Metro Inc. (MTRAF.PK) is showing a solid return on assets, but there is limited room for upside growth with the stock, according to Vishal Shreedhar, analyst at UBS Investment Research.

"Metro has delivered a solid five-year combined annual per-share earnings growth rate of 8.4%, with a good average return on equity of 16.5%," he wrote in a note to clients. "Over the same period, Metro's share price has had a combined annual growth rate of 12%, significantly outperforming the TSX Composite."

While Metro generates a return on assets of 8.8% versus the North American industry average of 8.1%, Mr. Shreedhar believes high returns could suggest limited opportunity for long-term share growth.

He wrote:

"While Metro is a strong operator, we believe it is benefiting from transient trends, including: 1) the most favourable food pricing environment since 2005; 2) easy year-over-year comparisons; 3) a stronger, albeit moderating, consumer backdrop in Quebec, its key territory); and 4) lower competition in Quebec, given no Wal-Mart Supercenters (WMT) and a weakened Loblaw (LBLCF.PK)."

The analyst initiated coverage with a neutral rating and price target of C$40.