2014 has been nothing short of a disaster for investors in Morrisons (LSE: MRW). Shares in the supermarket chain have fallen by a third since the turn of the year and have shown little sign of improvement in recent weeks. However, there could be much better times head for the company and for its investors. Heres why.
A Potential Turnaround Story
The success of any business is largely dependent on the decisions taken by management. Over time, they add up and compound to produce either success or failure. In Morrisons case, management seems to have ignored two major growth areas.
Indeed, Morrisons didnt get involved with the only two high-growth areas within the supermarket sector: online and convenience stores. This has undoubtedly cost the company a significant amount of top and bottom line growth, with sector peers such as Tesco having had an online presence, as well as convenience stores, for around a decade.
However, management at Morrisons are seeking to put this right. They are rolling out an online service that should be available to most of the UK population by the end of the year. Alongside this, they are opening a chain of convenience stores at a rapid rate. Although late to the party, both of these decisions could boost the companys top and bottom lines in future years.
A Change In Tastes
In recent years, UK shoppers have sought out a no-frills shopping experience at the likes of Aldi and Lidl in response to a squeeze on their cost of living. This is a natural reaction, but is unlikely to last in perpetuity. Indeed, Mark Carney was bullish in his speech to the TUC union this week with regards to real terms wage rises, which he predicted would start in the middle of 2015. Such a rise could cause shoppers to consider more than just price and would play into the hands of Morrisons, with its focus on service and fresh produce.
A Super Yield
Although dividends per share are due to be cut next year, Morrisons still has a strong, well-covered yield. Next year, it is forecast to yield 6.2%, which is due to be covered 1.3 times by profit. This is among the highest yields on the FTSE 100 and shows that, even during a highly challenging period, Morrisons remains a relatively reliable income play.
Although net profit is due to fall by 51% in the current year, Morrisons is expected to bounce back strongly in 2015. Earnings per share (EPS) are forecast to rise by 18% next year and, although profit will still be some way off its 2013 level, it shows that the company could make a comeback at a faster pace than many investors realise. For this reason, as well as its turnaround potential, the scope for a change in tastes and a strong yield, shares in Morrisons could be well worth holding on to.
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Peter Stephens owns shares of Morrisons and Tesco. The Motley Fool UK owns shares in Tesco. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.