Should you buy William Morrison Supermarkets (LSE: MRW) today?
I'm always searching for shares that can help ordinary investors like you make money from the stock market.
So right now I am trawling through the FTSE 100 (UKX) and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.
Today I am looking at William Morrison Supermarkets (LSE: MRW) to determine whether you should consider buying the shares at 265p.
I am assessing each company on several ratios:
Price/Earnings (P/E): Does the share look good value when compared against its competitors?
Price Earnings Growth (PEG): Does the share look good value factoring in predicted growth?
Yield: Does the share provide a solid income for investors?
Dividend Cover: Is the dividend sustainable?
So let's look at the numbers:
|Stock||Price||3-yr EPS growth||Projected P/E||PEG||Yield||3-yr dividend growth||Dividend cover|
|Wm Morrison Supermarkets||265||25%||9.7||1||4.2%||31 %||2.2|
The consensus analyst estimate for next year's earnings per share is 27.2p (9% growth) and a dividend per share of 11.7p (10% growth).
Trading on a projected P/E of 9.7, Morrisons appears to be valued between its major London-listed competitors, Tesco (LSE: TSCO) and J Sainsbury (LSE: SBRY), which trade on P/Es of 9.3 and 11.3 respectively. Morrisons' P/E and high single-digit growth rate give a PEG ratio of about 1, which implies the share price is appropriate for the earnings growth the firm is expected to produce.
Supporting a 4.2% yield, the dividend is slightly below Morrisons' competitors, who currently have an average yield of 4.5%. However, Morrisons has a three-year compounded dividend growth rate of 31%, implying the payout could soon catch up, and even overtake, that of its peers.
Indeed, the dividend is twice covered, giving room for further payout growth. Morrisons is also on track to return £1 billion to shareholders through share buybacks over the two years ending in March 2013.
Morrisons looks to be reasonably valued. What about future growth?
Recently, Morrisons' share price has come under pressure. Many analysts are concerned that the firm's growth strategy is not working, and capital expenditure is putting pressure on the balance sheet.
In my view, though, Morrisons is on the move. The firm has recently reduced its capital expenditure and still has one of the lowest levels of debt within the sector.
This year, Morrisons is opening new distribution and manufacturing centres to improve profit margins and accommodate growth within its value range, which has seen sales gain 40% this year. Morrisons is also driving forward with a new convenience store format in London, as well as expansion into the online wine market. The company plans to break into the clothing market next year as well.
These expansion programmes and the group's historic growth record lead me to believe that Morrisons is currently undervalued and has some exciting growth opportunities ahead. I also feel Morrisons has the ability to take significant market share from its competitors.
So overall, I believe now looks to be a good time to buy Morrisons at 265p.
More FTSE opportunities
As well as Morrisons , I am also positive on the blue chips highlighted in "The Market's Top Sectors". This special report sees three Motley Fool Share Advisor analysts each studying a favourable industry -- and spotlighting a particular share to consider for this year and beyond.
Various opportunities are covered in the report. One might provide "solid returns and... nice dividends", another could offer "global diversification and long-term growth potential", while a third looks a "high-quality business" from a battered sector.
You can read "The Market's Top Sectors" today by requesting the report for free. But hurry, the report is available for a limited time only.
In the meantime, please stay tuned for my next verdict on a FTSE 100 share.
At last -- a special free report that introduces novices to shares! "What Every New Investor Needs To Know" and The Motley Fool are helping Britain invest. Better.
Further Motley Fool investment opportunities:
> Rupert owns shares in William Morrison Supermarkets.