The Morrisons share price rises on higher sales. I’d buy MRW today

The Morrison share price is down over 12 months, despite sales being boosted by lockdowns. But I see better times ahead for this FTSE 100 stock!

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Man shopping in supermarket

Image source: Getty Images.

UK supermarket Wm Morrison Supermarkets (LSE: MRW) released its latest trading statement (PDF) this morning. This covered recent trading for the 14 weeks to 9 May 2021. Although the Morrisons share price rose until 1pm, its was pulled down in the afternoon by wider market weakness. But I think MRW shares might have the potential to recoup their 2018 highs.

Sales leap 5.3% at Morrisons

In its latest trading figures, the UK’s fourth-largest supermarket revealed total sales (including fuel) were up 5.3% year-on-year. Like-for-like sales (excluding net new space) were up 2.7% excluding fuel and up 4.7% including fuel. But supermarket sales from March to May 2020 were volatile and erratic, with lockdown causing panic buying and dramatically reduced fuel sales. Online sales more than doubled (+113%), while wholesale like-for-like sales were ahead more than a fifth (21%). Notable hot spots were Easter, Mother’s Day, and improving food-to-go sales. Yet the Morrisons share price has actually fallen over the past 12 months.

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

Looking ahead to 2021/22, Morrisons said it was, “on track for strong future profit growth and low debt.” It forecast, “profit before tax and exceptionals to be higher than the £431m we would have achieved for 2020/21, had we not waived the £230m business rates relief”. Obviously, voluntarily returning £230m to HM Treasury put a big dent in the group’s bottom line. The Bradford-based business also expects “another year of meaningful profit growth in 2022/23”. But the Morrisons share price is also lower today than it was five years ago.

The Morrisons share price has rebounded since Halloween

At its five-year peak, the Morrisons share price topped 267p in late August 2018. But it declined markedly over the next two years. By 5 November 2020, MRW shares had closed at a low of 161.75p. As I write, they trade at 183.95p, up less than a seventh (13.7%) from their Bonfire Night bottom. But I’m hopeful that the stock has further to go, perhaps even back to its 2018 highs?

Why would I buy MRW today?

I would buy at the current Morrisons share price of just under 184p. Why? Because, recognising that it was not performing so well, Morrisons introduced its Fix, Rebuild, Grow, Sustain strategy. This aims to improve profitability and cash flow, plus reduce net debt. With lower COVID-19 costs expected (£27m in the first quarter), the group says that, “cash flow will be strong, and debt will fall”. It also expects slightly higher profit in 2021/22, followed by “meaningful” profit growth in 2022/23.

To me, the business is going in the right direction, but the Morrisons share price is lagging behind. One hopeful hint came from this statement: “We now intend to refresh our long-term capital allocation plans”. To me, this hints at higher shareholder rewards (perhaps in the form of share buybacks, special dividends, or dividend increases). Meanwhile, the current dividend yield of 3.8% is higher than the wider FTSE 100 index’s.

Of course, optimistic and bullish forecasting is part and parcel of corporate life. But what happens if sales growth doesn’t rebound when cafés, delis, and salad bars reopen? After all, group revenue grew by a mere 0.4% in 2020/21. And what if the hoped-for ‘summer of sport and sun’ doesn’t arrive? Or there’s yet another protracted supermarket price war? Then Morrisons sales might disappoint. Even so, as a conservative value investor, I’d be willing to buy at the current Morrisons share price.

The Motley Fool UK's Top Income Stock...

We think that when a company’s CEO owns 12.1% of its stock, that’s usually a very good sign.

But with this opportunity it could get even better.

Still only 55 years old, he sees the chance for a new “Uber-style” technology.

And this is not a tiny tech startup full of empty promises.

This extraordinary company is already one of the largest in its industry.

Last year, revenues hit a whopping £1.132 billion.

The board recently announced a 10% dividend hike.

And it has been a superb Motley Fool income pick for 9 years running!

But even so, we believe there could still be huge upside ahead.

Clearly, this company’s founder and CEO agrees.

Learn how you can grab this ‘Top Income Stock’ Report now

Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

These 2 cheap shares dived last week. I’d buy 1 today

Although global stock markets rebounded hard this week, these two cheap shares were left behind in this surge. But I…

Read more »

Female friends enjoying their dessert together at a mall
Investing Articles

Down 40% in 2022, should I buy this 6.3% yield for my Stocks and Shares ISA?

Royal Mail shares have sold off aggressively due to lower parcel volumes and higher-than-expected inflation. Time to add them to…

Read more »

A person holding onto a fan of twenty pound notes
Investing Articles

3 cheap shares with dividend yields of up to 9%

These three cheap FTSE 250 shares all offer market-thrashing dividend yields of up to 8.7% a year. But which would…

Read more »

Twenty pound notes in back pocket of jeans
Investing Articles

3 passive income ideas I’m using today

Our writer shares three passive income ideas he's already using. They're dividend shares -- and he'd consider buying more of…

Read more »

Close-up of British bank notes
Investing Articles

Is now a good time to buy dividend shares?

As economic pressures increase, concerns are growing over dividend shares. Here's why I think it's right to buy now, not…

Read more »

Middle age senior woman sitting at the table at home working using computer laptop clueless and confused expression with arms and hands raised.
Investing Articles

Is now a good time to buy UK stocks?

Markets remain volatile but this Fool doesn't care. He's busy buying great UK stocks on the cheap.

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

A top-quality growth stock to buy on the dip

Growth stocks have sunk this year, with inflationary pressures being the primary reason. Here's one that looks unfairly beaten-down.

Read more »

Gold bullion on a chart
Investing Articles

How I’m protecting my portfolio from a stock market crash in 2022

I am investing in this asset class to protect my portfolio from high inflation, slower growth, or a stock market…

Read more »