Tesco (TSCO)
released holiday sales that came in below expectations, but the real
news was that operating profits would come in at the low end of
consensus. Recall from our initiation report back on Oct. 7, that we
disagreed with management and the consensus view that price investments
would be margin neutral. We therefore already have EBIT margins
declining in our discounted cash model. As a result, along with
management lowering planned capital expenditure spending, we are keeping
our fair value estimate intact. Shares are down about 16%, trading
around 324p, but we would not be buyers until profit margins find a
trough. We see EBIT margins bottoming somewhere in 2014.
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