WM. Morrison Supermarkets (LSE: MRW) (NASDAQOTH: MRWSY.US) and J Sainsbury (LSE: SBRY) (NASDAQOTH: JSAIY.US) have stunk like a display of rotten fruit lately.
Both have been looking well past their sell-by date, with Morrisons down 38% in the last 12 months and Sainsbury’s down 42%. But in recent days, an astonishing thing has happened. Morrisons, which has even out-stunk Tesco at times, suddenly looks a bit fresher.
Could this be a sign of a tastier 2015?
Rise And Shine
Morrisons is up almost 15% to 176p in the last month, after Q3 results showed an improved net debt position, at £2.6bn, and chief executive Dalton Philips predicted same-for-same store revenues would bounce back next year.
Its Match & More price matching campaign may actually be working, while management has identified more than ÂŁ1bn of cost savings, and remains publicly committed to a progressive and sustainable dividend.
The current 7.35% yield is certainly one to sink your teeth into.
Fine Young Cannibals
It’s a pleasant change to report some good news from the supermarket sector, so let’s linger over those positives while we move onto Sainsbury’s, the supermarket that’s posher than Tesco but doffs its cap to Waitrose.
The days when Sainsbury’s could proudly boast 36 consecutive quarters of growth are gone, as it also falls victim to the wages squeeze, the onward march of Aldi and Lidl, and wider sectoral decline.
Confidence is clearly low at Sainsbury’s, which recently warned of “years” of negative same-store sales growth for the industry, as cash-strapped shoppers chase prices down, and convenience store cannibalisation continues.
Shore Capital’s recent gloomy forecast of a 30% reset in earnings per share at Sainsbury’s, and three years of declining profits and dividends, have dented investor confidence too. The stock is down 7% over the last month.
This has put Sainsbury’s yield on a crunchy 7.45%, but don’t be deceived, that’s unlikely to last.
More Reasons To Buy Morrisons
At least Morrisons is making good its most glaring failures, finally launching its online channel and making a late dash for convenience store growth, while maintaining its capital discipline.
Things got so bad at Morrisons they could only get better, and it’s worth buying for that luscious yield alone, assuming management really can sustain it. Sainsbury’s may be trading at a temptingly low 6.2 times earnings, but given its putrid outlook, it looks like a value trap to me.