Tesco Lowers Forecast, Moves In Line with Ours

Tesco's weak holiday sales has caused management to reduce profit expectations, bringing them more in line with our own forecasts

Michael Keara 13 January, 2012 | 2:21PM
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Tesco (TSCO) released holiday sales that came in below expectations, but the real news was that operating profits would come in at the low end of consensus. Recall from our initiation report back on Oct. 7, that we disagreed with management and the consensus view that price investments would be margin neutral. We therefore already have EBIT margins declining in our discounted cash model. As a result, along with management lowering planned capital expenditure spending, we are keeping our fair value estimate intact. Shares are down about 16%, trading around 324p, but we would not be buyers until profit margins find a trough. We see EBIT margins bottoming somewhere in 2014.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Tesco PLC289.80 GBX-0.55Rating

About Author

Michael Keara  is an equity analyst covering major retailers in the consumer sector.

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