3 Ways Wm. Morrison Supermarkets plc Will Continue To Lag Its Sector

Right now I’m comparing some of the most popular companies in the FTSE 100 with their sector peers in an attempt to establish which one is the more attractive investment.

Today I’m looking at Wm. Morrison Supermarkets  (LSE: MRW) (NASDAQOTH: MRWSY.US)


As always, let’s start with the basics and there is nothing more basic than a simple comparison of Morrisons’ current valuation to that of its closest peers and the wider sector.

Indeed, Morrisons currently trades at a historic P/E of 10.3, which is lower than the food & drug retailers sector average historic P/E of 13.8. Furthermore, Morrisons’ closest sector peers, Sainsbury’s and Tesco, trade at historic P/Es of 12.9 and 10.1 respectively.

So on a valuation basis, Morrisons sits right between its two larger peers.  

Company’s performance

Nonetheless, Morrisons’ earnings growth during the past five years has been on a par with peer Sainsbury’s. In particular, during the past five years Morrisons’ earnings per share have expanded 53%, while Sainsbury’s earnings per share have expanded 54%. Unfortunately, larger peer Tesco has only been able to chalk up earnings per share growth of 24% during the same five-year period. 

What’s more, Morrisons’ net profit margin is greater than that of Sainsbury’s, standing at 4% for the last reported financial year. In comparison, Sainsbury’s only reported a net profit margin of 2.6%.


Morrisons outperforms its peers on the dividend front as well. Indeed, at present the share supports a 4.2% dividend yield, which is currently  the same as the yield offered by Sainsbury’s. However, City analysts predict that Morrisons’ dividend payout will grow around 14% annually for the next two years. Unfortunately, Sainsbury’s payout is only expected to grow by 8% annually for the next two years.  

In addition, Morrisons’ payout is currently covered just under two-and-a-half times by earnings, giving the company plenty of room for further payout growth and investors piece of mind that their payout is secure.

Foolish summary

So overall, although Morrisons has fallen out of favour with investors recently, the company’s valuation now looks attractive. What’s more, Morrisons offers a sector leading dividend yield, which is well covered by earnings and predicted to grow at a double-digit rate for the next two years.

So overall, I feel that Morrisons is a much stronger share than its peers. 

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And please stay tuned for my next FTSE 100 verdict.

> Rupert owns shares in Tesco. The Motley Fool owns shares in Tesco and has recommended Morrisons.