TSX Commentary

George Weston Ltd. (WN) – $70.96 – Waiting for Go-Dough: Q4/09 Preview
Sector Perform, Average Risk, Price Target: $74.00
Given that Loblaw (TSX: L, $32.52; O-Avg), which generates approximately 90% of consolidated EBITDA, reported last week, the focus for tomorrow’s release will be on: 1) operating trends at Weston Foods; and 2) any insight provided into the timing/nature of deployment of WN’s sizeable cash balance. Generally cautious consumer spending moderated top line at Weston Foods through the first nine months of 2009, and RBC CM expects similar performance for Q4. But extensive organizational realignment and focus on cost containment are delivering industry-leading levels of profitability. For Q4, RBC CM forecasts revenues of $371 MM at Weston Foods and EBITDA of $50 MM. As for the deployment of the cash balance, RBC CM believes management will reiterate that it is continuing to assess the options, with no commitments to the Street around timing/nature of the ultimate use of the $2.5 billion in proceeds from the sale of its U.S. baking assets, which closed in late January of 2009. RBC CM’s incorporation of the actual Loblaw Q4 results into its WN model and modification of assumptions for WN Foods drives an increase in Q4/09 EPS from $0.62 to $0.81 and RBC CM’s 2009 EPS estimate from $3.13 to $3.31. Revised RBC CM $C forecasts drive a modest reduction in 2010E/2011E EPS from $3.27 to $3.19 and $4.06 to $3.86, respectively. RBC CM’s target remains unchanged at $74. Based on Friday’s closing prices, the implied value of WN’s non-Loblaw assets is $21, vs. RBC CM’s assessment of fair value of $22.