The Tesco (LSE: TSCO) The stock price was flying in the first trading this morning as the company announced that it would raise profit margins for the full year. With steps being taken to renew market interest in UK supermarkets in recent months, I think the opposite could happen. Although it is less likely to be all simple-sailing.
Profits have increased
.3 At 27.3bn, sales grew 2.6% year-over-year compared to the same period in 2020. As a result, the total consolidated operating profit jumped 40.60% to 46 1.b billion. The lion’s share came from the company’s stores, which benefited by reducing epidemic costs in the UK and abroad. That said, it’s encouraging to note that Tesco Bank has also returned to profitability.
On a statistical basis, revenue rose 5.9% to £ 30.4bn during the period, more than doubling pre-tax profits to £ 1.14bn. In another positive case, free cash flow from Tesco’s retail arm reached 93.6%, helping the company reduce its net debt burden from £ 12.5bn to £ 10.2bn. Anyone who attaches great importance to the financial resilience of an organization, this was a special highlight for me.
Expectations have risen
After such a great first half, Tesco has now raised its expectations on consolidated retail operating profit for the full year ending February 27th. A total of 6 2.6bn has now been predicted, although some moderation in sales is likely. This is an increase of 4% over the previous direction.
Naturally, there is no guarantee that this number will hit. Supply chain problems, driver shortages and food price inflation could create a difficult festive season for all supermarkets, including Tesco. CEO Murphy was keen to highlight why the company has a relationship with its suppliers. “A key resource“.However, I suspect things could drag on towards the end of 2021.
Of course there are other potential obstacles. As the level of Covid-1 infection increases, more people can socialize indoors and hurt feelings towards stocks. The sharp rise in energy prices could also result in buyers adjusting their spending to meet higher bills. Naturally, a massive downturn in economic growth could also see the FTSE 100 retreat. In such a scenario, despite the company’s fairly defensive qualities, Tesco share prices are likely to fall together.
Even after so much, the stock still catches my attention.
Tesco share price: still good price
Tesco was earning 13 times before the market opened this morning. For a business that owns a huge share of the market (and an extremely popular loyalty project) that seems reasonable to me. My enthusiasm grows even more when one considers how much the company has improved its digital offer. Yes, there is no doubt about multiple lockdowns in the UK. However, online sales growth of 74.1% in two years should not be breathed.
In addition to the above, I consider Tesco a great candidate for an income-oriented portfolio. This year yields a potential 9.6p cash return per share of 3.8%. This is more than the 3.5% given by the FTSE 100. It also looks very secure based on the expected profit.
Patience is required
Today’s rise in Tesco share price seems fair. It also gives me some way to strengthen my opinion that it is still the best pick in this sector. So, while the next few months may prove difficult for all retailers and patience is definitely needed, I will feel comfortable buying TSCO today.
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Paul Summers has no position on any of the shares mentioned. Motley Flowers UK has recommended Tesco. The opinions expressed in the companies mentioned in this article may differ from those of the authors and therefore the official recommendations we make on our subscription services such as Share Advisors, Hidden Winners and Pro. Here at The Motley Flower we believe that considering a variety of insights makes us a better investor.