Tesco PLC (TSCO): Is This Stock Back on the Rise?

LONDON — I am backing supermarket leviathan Tesco PLC (LON:TSCO) to put the difficulties of the past 12 months behind it and return to growth in the medium term. Shares in the firm have risen 15% since the start of 2013, and I am expecting them to gain traction as its strategy to rebuild its British operations comes to fruition.

Tesco Corporation (USA) (NASDAQ:TESO)

Sales rise in first quarter but still lag rivals
Latest data from research consultancy Nielsen released this week showed sales at Tesco PLC (LON:TSCO) rose 4% in the 12 weeks to March 30 vs. the corresponding 2012 period. This was in huge part thanks to an early Easter period, which fell earlier than usual at the end of March.

Despite this sales improvement, Tesco PLC (LON:TSCO)’s revenues increase still lagged that of its major supermarket rivals. Sales for both J Sainsbury plc (LON:SBRY) and Asda increased 8.2% and 5% in the first three months, while Waitrose’s demand increased 13.9%. And Tesco PLC (LON:TSCO)’s U.K. market share slipped to 28.3% from 28.6%.

However, Tesco PLC (LON:TSCO)’s plan to refocus attention on the domestic market is still in its early stages, and the company has both the experience and firepower to drag itself back to the top of the British retail pile over the longer term. The supermarket hiking its television and press advertising expenditure by 41% to 6.6 million pounds during March, for example, outpacing the 24% hike across the grocery space to 32.9 million pounds and illustrating the resources it has at its disposal.

Earnings forecast to bounce back from this year
City analysts expect earnings per share for the year ending Feb. 2013 — results for which are due for release on Wednesday, April 17 — to fall 17% to 31 pence. But earnings are expected to snap back from this year onward, with growth of 6% to 33 pence penciled in for this year before picking up speed. An 8% rise to 36 pence is forecast for 2015.

The supermarket is a popular pick among income investors owing to its generous dividend policy, and forecasters expect Tesco PLC (LON:TSCO) to keep the dividend stable at 14.8 pence for 2013 despite severe earnings pressure over the past year. And the firm is expected to hike the payout to 15.5 pence and 16.7 pence in 2014 and 2015, respectively, presenting a plump yield of 4.2% and 4.5% for these years. This compares with the 3.3% FTSE 100 average yield.

Tesco currently trades on a P/E rating of 11.5 and 10.6 for 2014 and 2015, respectively, providing a decent discount to a prospective earnings multiple of 12.7 for the entire food and drug retailers space. I believe that the firm offers excellent value as earnings look set to bounce back and dividends head substantially northwards once again.

The article Is Tesco Back on the Rise? originally appeared on Fool.com.

Royston Wild does not own shares of any of the companies mentioned. The Motley Fool recommends and owns shares of Tesco.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!