Morrisons (LSE: MRW) shares have been volatile of late. In fact, the stock has fallen 3% since the beginning of the year and is down 7% over the past 12 months.
So is now a buying opportunity? I reckon the supermarket chain is undervalued and I’d buy Morrisons shares at the current price. Here’s why.
Coronavirus
Like all supermarkets, Morrisons stayed open during the pandemic. But the recent full-year results indicated that it had incurred £290m in costs relating to Covid-19. This included taking on additional staff as well as paying for hygiene and protective equipment.
I’m not surprised at these additional costs. And of course, this was going to take its toll on profitability. Its latest operating profits were down compared to the previous year.
In general, I thought the results were resilient given the circumstances. But I think there were a few gold nuggets in the announcement that investors are maybe missing. I’ll address them now.
Online sales
I think Morrisons’ online proposition had lagged its competitors. But that was before the pandemic. Covid-19 has been a catalyst for the supermarket chain to boost its online sales.
In fact, the full-year results indicated that the company had to invest £66m for the rapid transformation of its online and home delivery offering. I guess it was either that or be left behind. But the hard work paid off, and its online sales tripled during the year.
The pandemic has allowed the retailer to ramp up its online service in a short period. I reckon this is a growth driver, which should help Morrisons shares in the long-term.
Partnerships
I think the supermarket chain’s partnerships are also potential growth drivers. It has partnered with Amazon to offer same-day delivery. This has expanded very quickly and is now available to millions of Amazon Prime members.
It also has a partnership with Deliveroo, which has been progressing well. This is where groceries can be ordered and delivered to customers in as little as 30 minutes. And the service is now available from over 180 stores.
I reckon these propositions could continue to grow after the pandemic and help to give Morrisons an edge over its competitors.
Competition
Although the retailer is trying to distinguish itself from its peers, competition is fierce. I think this is what has hindered Morrisons shares. Aldi and Lidi and gaining market share in the sector, which could impact the stock going forward.
Consumers are also fickle and go for the cheapest option. In my opinion, competing on price is concerning. If Morrisons goes down the route of selling cheap, this could have an impact on its margins.
Contract
But I think things looks promising for Morrisons shares. The supermarket will be converting 300 McColl’s stores into Morrisons Daily over the next three years. These shops will offer the full Morrisons convenience range but will be owned and operated by McColl’s.
This could boost the supermarket chain’s future revenue. But what’s also great is that in addition, McColl’s has extended its wholesale contract with Morrisons to 2027.
I think this stock is being overlooked by investors and hence I’d buy it at the current price.