After a tough couple of years for Tesco (LSE: TSCO) (NASDAQOTH:TSCDY) April’s full-year results did not provide the respite that investors needed.
Underlying diluted earnings per share (EPS) dropped a further 7.3% to 32.05p after revenues remained stubbornly flat, the dividend remained unchanged for the third year in a row at 14.76p per share, and chief executive Philip Clarke spoke of “the challenges we face in a trading environment which is changing more rapidly than ever before“.
Over the year, the share price has fallen more than 20% to today’s 299p, and since that Christmas 2011 crash we’re looking at a fall of 28%.
So when will we be seeing a return to growth?
More falls to come
Not this year, if the analysts’ opinions are anything to go by — for the year ending February 2015, they’re forecasting a further 14% fall in EPS, together with a 4% cut in the dividend to 14.1p per share. Early predictions for 2016 suggest a 2% EPS recovery, but this far in advance that doesn’t really mean a lot.
And looking at the forecast trend over the past 12 months only makes for more depressing reading. A year ago, the great and good of the City were telling us to expect EPS of 34.8p for 2015, and that’s since fallen a long way to the latest consensus of 26.8p — and something similar has happened to the dividend, with predictions scaled back from 16p per share.
Recommendations?
If that’s not gloomy enough, look at what they’re recommending. Of a sample of 20 brokers, seven have a Strong Sell tag on Tesco with three more sitting on Sell. Only four are in the Strong Buy camp, with just one saying Buy. Five are neutral on Hold.
Does that set of recommendations make sense? In the shorter term, I have to agree it probably does — for those with money to invest now, there are better options out there with more attractive prospects.
But over the longer term, I fully expect Tesco to re-establish itself — after all, it is still the UK’s biggest groceries retailer, with around a third of the total market.
And now just might be a good time for contrarians to get in — maximum pessimism and all that.
I’m holding
I currently have Tesco in the Fool’s Beginners’ Portfolio, and I confess I’ve been disappointed with what I’ve seen so far — I really didn’t expect the recovery to have taken this long. But with the shares on a forward P/E of only 11 and the current price taking the forecast dividend yield to 4.8%, I’m not dumping the shares.