Tesco Lowers Forecast, Moves In Line with Ours

Tesco's weak holiday sales has caused management to reduce profit expectations, bringing them more in line with our own forecasts

Michael Keara 13 January, 2012 | 2:21PM
Facebook Twitter LinkedIn

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.

Morningstar Premium Members gain exclusive access to our full Tesco Analyst Report, including fair value estimate, bull and bear breakdowns, and risk analysis. Not a Premium member? Get these reports immediately when you try Morningstar Premium free for 14 days.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Tesco PLC371.90 GBX0.22Rating

About Author

Michael Keara  is an equity analyst covering major retailers in the consumer sector.

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Modern Slavery Statement        Cookie Settings        Disclosures