So far in 2021, Morrisons (LSE: MRW) and Tesco (LSE: TSCO) shares have remained pretty much in step. Thanks to a decline in the Morrisons share price between 2018 and 2019 though, the Tesco share price is ahead over five years. But Morrisons’ first-quarter update, released Tuesday, looks good to me.
Like-for-like sales, excluding fuel, grew by 2.7%. And two-year like-for-like sales jumped an impressive 8.7%. Online sales at Morrisons rose by 113%, but we’d expect something like that thanks to the lockdowns of the past year. Interestingly, though, that’s a bigger online increase than the 77% reported by Tesco for the 2020 full year. Tesco’s Q1 update isn’t due until June, so we have a little while to wait before we can do a more up-to-date comparison.
Beating the Tesco share price
The Morrisons share price ended results day on a 0.3% loss. That might not look like a vote of confidence. But it was a down day for the FTSE 100 overall, with the Tesco share price falling 2.7%.
In some ways, I see things happening today that were happening at Tesco in the past. Tesco overstretched itself, hitting the crisis that led to Warren Buffett selling out. And when the man whose favourite holding period is “forever” sells a stock, something is seriously wrong. Still, Tesco has pulled things round rather well, and it shows in the share price. After several years of volatility, Tesco shares look a good bit safer to me now.
Similarly, if perhaps not so dramatically, Morrisons recognised that it needed to refocus, to control its costs better, and to improve its profitability. That’s been working, and I see further signs of progress in this latest update. The company reckons its year-end net debt to EBITDA multiple should be “no higher than the 2019/20 level of 2.4x.”
More debt reduction please
I generally prefer something quite a bit lower than that. But for a company with a reasonably clear forward view of its business, I’m happy enough. I do hope to see it coming down further in the next few years, though. Morrisons would be in an even stronger cash position had it not waived the £230m in business rates relief it was offered during the pandemic. And that also speaks well of the company’s own optimism. But are Morrisons shares in for a similar uprating to the Tesco share price of the past couple of years?
I’ve so far been avoiding the obvious threat to these two. And it comes in the shape of Lidl and Aldi. These two were pushed into the back seat during our extensive lockdown periods, for one main reason. They don’t do home deliveries. Tesco and Morrisons have a key strength there. But with shopping restrictions easing, will we see a resurgence from the cut-price competitors?
Competitive advantage?
We might also see fallbacks in business at Morrisons and Tesco as people are ever freer to go out and shop for themselves. And many are doing exactly that, just because they increasingly have the freedom to. But I still think Tesco and Morrisons enjoy key advantages, and I predict long-term growth for both the Tesco and Morrisons share prices.
So to answer my question in the title of this piece, yes, I do think Morrisons could end the year ahead. But I’d actually buy both stocks.