Why Tesco PLC Should Beat J Sainsbury plc And Wm. Morrison Supermarkets plc In 2015

It was a disastrous Christmas shopping period in 2011 that triggered the slide for Tesco (LSE: TSCO), so could it be Christmas 2014 that sees the start of a share price recovery?

I reckon there’s a good chance it could, and I think Tesco is the most likely of the three FTSE 100 supermarkets to finally turn things around in 2015. But let me first tell you why I don’t think it will be one of the others…

Morrison’s sorted?

Wm  Morrison (LSE: MRW) shares have actually recovered a bit since the start of November to 182p, but that comes after a 12-month fall of 45% — still, at least it’s back up to to a loss of only 30% now.

There’s a fall of 50% in earnings per share (EPS) forecast for the year ending January 2015, but that would put the shares on a P/E of almost 15, which is ahead of the FTSE average! The City is expecting a return to growth the following year, with 11% penciled in, but that could prove premature. The problem is, Morrison’s problems are only just being sorted. Online shopping is finally picking up steam, but at Q3 time it was still only boosted like-for-like sales by 0.7%.

Multi-format store rollout is only in its early days too, and the competition will still have the lead there for some time to come.

Worse to come at Sainsbury?

The weird thing about J Sainsbury (LSE: SBRY), whose shares have shed 35% over the past 12 months to 245p, is that I don’t think it’s actually doing much wrong. It knows its intended market segment and is targeting it well, and it keeps on picking up award after award.

But that market segment is itself under pressure, and the need to save money is still pulling a lot of people away from wanting the more upmarket shopping that Sainsbury offers. But at least Sainsbury is on a forward P/E of under 10, so the potential downside is probably more limited.

Tesco the best?

Who was it who said that Tesco is in such a state that nothing its management could do could make it worse? To some extent, that’s behind my feelings for its 2015 prospects. We’re likely to see an EPS fall of around 50% by February 2015, on a par with Morrison’s. But Tesco’s P/E is lower at 11.7.

And the management is actually doing some good things — the recent management shakeup shows that new boss Dave Lewis is deadly serious. We’re going to see some serious restructuring, with some Asian assets (once considered amongst the jewels in Tesco’s crown) being sold off.

Share price up?

Tesco’s margins should hopefully improve during the course of the year, and a recovering dividend will hopefully give the shares a boost — after a 46% fall this year to 186p, surely the only way is up now?

Would Tesco fit well in a decent retirement portfolio? Over the long term, I reckon you could do a lot worse.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK owns shares of Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.