Is Now the Time to Buy Morrison?

LONDON -- 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 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.L  ) to determine whether you should consider buying the shares at 265 pence.

I am assessing each company on several ratios:

Price/Earnings (P/E): Does the share look like a good value when compared against its competitors?

Price Earnings Growth (PEG): Does the share look like a 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

William Morrison Supermarkets 265 25% 9.7 1 4.2% 31 % 2.2

The consensus analyst estimate for next year's earnings per share is 27.2 pence (9% growth) and a dividend per share of 11.7 pence (10% growth).

Trading on a projected P/E of 9.7, Morrison appears to be valued between its major London-listed competitors, Tesco and J Sainsbury, which trade on P/Es of 9.3 and 11.3, respectively. Morrison's 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 Morrison's competitors, which currently have an average yield of 4.5%. However, Morrison 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. Morrison is also on track to return 1 billion pounds to shareholders through share buybacks over the two years ending in March 2013.

Morrison looks to be reasonably valued. What about future growth?
Recently, Morrison's 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, Morrison 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, Morrison is opening new distribution and manufacturing centers to improve profit margins and accommodate growth within its value range, which has seen sales gain 40% this year. Morrison 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 programs and the group's historic growth record lead me to believe that Morrison is currently undervalued and has some exciting growth opportunities ahead. I also feel Morrison has the ability to take significant market share from its competitors.

So overall, I believe now looks to be a good time to buy Morrison at 265 pence.

More FTSE opportunities
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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.

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In the meantime, please stay tuned for my next verdict on a FTSE 100 share.

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Further Motley Fool investment opportunities:

Rupert Hargreaves owns shares in William Morrison Supermarkets. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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