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Sainsbury’s share price looks unappetising ahead of earnings

Sainsbury’s share price looks unappetising ahead of earnings

Although Sainsbury’s [SBRY] share price didn’t fall quite as hard as in the first quarter, it came close to reaching its March lows recently when it closed at 179.15p on 1 September, a 22% year-to-date drop. As of 3 November’s close of 208.3p, Sainsbury’s share price was down 10.3% year-to-date. The UK grocery retail chain is expected to announce interim results on 5 November, so what should investors expect for Sainsbury’s share price?

On 12 March, Sainsbury’s share price fell to an intraday low of 173.35p, before closing slightly higher at 174.95p. This marked a year-to-date loss of 23.9% and was the stock’s lowest close in more than 30 years.

Its highest close since came less than a week later when Sainsbury’s share price closed the 18 March at 216.30p. Even so, it remained down 5.9% for the year.

Sainsbury’s share price has shown signs of improvement since, but it has struggled to recover and has failed to reach a value above its 2020 opening price of 230p for much of the year.



How has Sainsbury’s been performing?

Sainsbury’s share price faltered as annual results for fiscal year 2020, released on 29 May, reported underlying basic earnings of 19.8p per share — down 4.3% from 20.7p the previous year.

When Sainsbury’s released its first-quarter earnings for fiscal year 2021 on 1 July, it reported that total retail sales for the group (which includes the core grocery business and Argos, but excludes fuel) were up 8.5% from the previous year. It highlighted that digital sales had increased 87% year-over-year and per week orders had almost doubled.

Grocery sales alone were up 10.5% and there was an 87% growth in grocery sales being made online as a result of the coronavirus pandemic. Regardless of these figures, Sainsbury’s share price fell 2.6% from the previous day’s close.


Growth of Sainsbury's online grocery sales


Sainsbury’s pointed to an expected £500m profit impact from COVID-19, noting the pandemic was continuing to have a significant effect on business operations.

Simon Roberts, CEO of Sainsbury’s, noted that the company had changed fundamentally during the period. He cited the challenges ahead, and predicted that the company’s strong sales growth was not likely to continue.

The company suggested its best-case scenario would see group underlying profits remain largely unchanged.

For the full fiscal year 2021, analysts are currently expecting earnings per share of 17p and for group sales (excluding VAT) to total £28.97bn, according to MarketScreener. These would mark an increase of 183.3% and 0.09% decrease, respectively, from fiscal year 2020.


Sainsbury's expected full fiscal year group sales


Analysis from the site suggested that Sainsbury’s has insufficient levels of profitability, while also noting that the company’s earnings releases “usually do not meet expectations”.


Should investors shop at Sainsbury’s?

“Sainsbury’s is simply less profitable than its rivals. Its products are seen as more expensive than most, while it is simultaneously battling heavy debts and the competition of budget-friendly alternatives,” Dan Peeke wrote in The Motley Fool.

In September, Shore Capital reiterated its recommendation to Buy the stock with a 187p price target, according to Capital.com.

“Sainsbury’s is simply less profitable than its rivals. Its products are seen as more expensive than most, while it is simultaneously battling heavy debts and the competition of budget-friendly alternatives” - Dan Peeke


Meanwhile, Barclays analysts have also given the stock a Buy rating, citing its strong underlying free cash flow, anticipated higher sales and strategic update.

The consensus among 17 analysts polled by the Financial Times was an Outperform rating, given by a majority of six analysts, with another three analysts rating the stock a Buy, while five analysts rate the stock a Hold, two Underperform and one rates it a Sell.

Among 14 analysts offering 12-month share price forecasts on the Financial Times there is a median target of 245.00p with a high of 280.00p and a low of 180.00p. The median would imply a 17.6% increase on Sainsbury’s share price at 3 November’s close.

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