Is It Still Safe to Buy Wm. Morrison Supermarkets?

LONDON  -- I'm always searching for shares that can help ordinary investors like you make money from the stock market. However, many people have been worried the market could be overheating -- with fears recently being realized.

So right now I'm analyzing some of the most popular companies in the FTSE 100, hoping to establish if they can continue to outperform in today's uncertain economy.

Today I'm looking at Wm. Morrison Supermarkets  (LSE: MRW  ) (NASDAQOTH: MRWSY  ) to determine whether the shares are still safe to buy at 264 pence.

So, how's business going?
Morrisons has failed to impress the market over the last few months as investors worry about the company's ability to compete with larger peers Tesco and Sainsbury's, which dominate the food retail market.

Having said that, Morrisons has been working hard to try and turn its fortunes around, and it appears that the company's plan is starting to gain traction.

Indeed, according to a report released this week by researcher Kantar, Morrisons' sales rose 1.2% in the 12 weeks to June, the company's third consecutive quarter of sales growth, reversing the previous six quarters of declining sales.

In addition, Morrisons' recent distribution agreement with online food retailer Ocado, has given the company a jump-start in the world of online food-shopping, and the service is expected to be fully operational by the beginning of 2014.

Furthermore, after opening its first convenience store earlier this year, Morrisons has quickly expanded and now has 18 convenience stores in operation with plans for an additional 80 in the pipeline.

Expected growth
Unfortunately, while it would appear that Morrisons' sales are starting to expand again, many City analysts remain cautious and expect the company's earnings to remain almost unchanged for the next two years. City forecasts currently predict earnings of 25.9 pence per share for this year (a fall of 2%) and 26.8 pence for the year after.

Shareholder returns
Morrisons' dividend yield is currently 4.5% -- larger than that of its peers in the food and drug retailers sector, which currently offer an average dividend yield of 4.2%.

In addition, Morrisons' payout is covered 2.3 times by earnings, which makes the payout look safer than that of its closest peers Sainsbury's and Tesco, which offer payouts covered 1.8 and 1.2 times by earnings, respectively.

Moreover, during 2012, Morrisons completed a multiyear 1 billion pound share-buyback program -- the only buyback of its kind in the sector.

Valuation
Unsurprisingly, as Morrisons' earnings are predicted to decline this year, the company trades at a slight discount to its sector peers. Morrisons currently trades at a historic P/E of 9.8, while its peers trade on an average historic P/E of around 9.9.

Foolish summary
Overall, it appears that Morrisons could be starting to make a comeback, and while the company trades at a premium to its peers, Morrisons still offers a higher than average dividend yield that is well covered.

So all in all, I feel that Morrisons still looks safe to buy at 264 pence.

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


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