WM Morrisons still struggling

The supermarket firm will announce it third-quarter results 5 November, and the turnaround programme is just getting started.

WM Morrisons logo
Source: Bloomberg

Morrisons is still struggling as the entire industry is feeling the pinch from the deep discount retailers, Aldi and Lidl. To make matters worse, the company has a long way to go before its restructuring scheme has a material impact on the business. First-half profits fell by nearly half as the price war intensifies between the UK supermarkets, and Morrisons is the weakest of the bunch.

As I previously stated, David Potts has been at the helm since March, and the company has plans to close down up to 11 underperforming stores, and it already shut ten supermarkets in 2015. It is not just the supermarkets that are being trimmed; the company took a hit of £30 million when it sold off its remaining 140 convenience stores. Mr Potts stated the group is on-track to achieve its £1 billion cost cutting scheme. It is encouraging to see that Mr Potts is taking action, but Morrisons is only starting out on its road to recovery, and the outlook for the company and the sector is still dreary.

Morrisons will announce its full-year numbers in March 2016, and dealers are anticipating revenue of £16.24 billion and adjusted net income of £219 million. These estimates equate to a small fall in revenue and a 2.6% drop in adjusted net income. The supermarket will reveal its second-half results on the same date and traders are anticipating revenue of £8.09 billion and adjusted net income of £121 million, which compares with the first-half revenue and adjusted net income of £8.06 billion and adjusted net income of £87 million.

Equity analysts are a touch on the bearish side when it comes to Morrisons, and out of the 22 ratings, four are buys, ten are holds, and eights are sells. The average target price is 179p, which is 5.9% above the current price. Investment banks are bullish on Tesco, and out of the 23 recommendations, nine are buys, ten are holds, and four are sells. The average target price is 217p, which is 18.5% above the current price.

The Morrisons share price has been in a downward trend since September 2013, and 160p and 150p are the downside targets. Any rallies will provide opportunities to sell, and resistance will be encountered at 188p and then at 200p. 

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