Industry Spotlight

Will Sainsbury's, Tesco and Ocado's share prices continue to defy market panic?

The coronavirus outbreak has seen supermarket share prices gain as shoppers stock up. With these stores looking like one of the few places consumers will be able to shop, will Sainsbury’s, Tesco and Ocado’s share prices continue to see gains?

With UK shoppers stockpiling food and other essentials, supermarkets are one of the few sectors not, wholly, adversely impacted by the coronavirus. Sainsbury's and Morrison's share prices have held steady since the outbreak began, while online grocer Ocado's stock is soaring. And while Tesco's share price has dropped, it's at least holding up better than the wider FTSE 100, which has plummeted over 30% this month.


Drop of the FTSE 100 over the past month


But will Sainsbury’s, Tesco and Ocado’s share prices continue to defy the current market trend?


Increased demand for supermarket share

As anyone who's set foot in a supermarket in the past two weeks will tell you, there's unprecedented demand. Panic buying has left supermarket shelves empty as shoppers stockpile dried pasta, loo roll and more. Also putting strain on the kitchen cupboard are school children and office workers who are now eating lunch at home.

According to an unnamed source quoted by This is Money, sales have gone up by as much as 50%, “even 70% in some cases”.

Hopefully the panic buying will ease. At the weekend, environment secretary, George Eustice, urged shoppers not to stockpile. His message was simple: “there is enough food available”.

But over the coming months, supermarkets might be one the few places consumers can shop. With restaurants and pubs closed, money that would have been spent on the town is now going to be spent in the aisles.

'Staying in is the new going out whether we like it or not. With other high street stores shutting up shop for the foreseeable future, there aren't going to be that many places to spend money,' a director of a major retail chain told This is Money.

“Staying in is the new going out whether we like it or not. With other high street stores shutting up shop for the foreseeable future, there aren't going to be that many places to spend money” - director of a major retail chain

The source expects demand at supermarkets to remain high during the outbreak. A marked contrast for a sector that has experienced stagnant sales and increased competition.


Sainsbury's share price

Over the past month Sainsbury's [SBRY] share price is down just over 1% as shoppers stock up. Sainsbury’s now needs more staff to handle the increased footfall. To do this it is encouraging companies laying off staff to get in touch to redeploy workers. With an estimated half a million hospitality staff out of work because of the virus, this is a much- needed gesture.

Last quarter Sainsbury’s saw growth come in at -0.20% as discounters Aldi and Lidl continued to eat into its market share. Things could look different when it next updates the market. Among the analysts, Sainsbury's carries a 317p 12 month price target.



Ocado’s share price

Ocado’s [OCDO] share price has leapt over 17% as customers wary of stepping outside have looked to online delivery.

According to Yahoo Finance, Ocado has seen increased basket sizes and second quarter growth far outpacing that of the first quarter. Last week the online grocer's website crashed as it was unable to handle the sheer number of online orders.

Ocado has been on a stellar run and recently reported a 10% increase in retail revenue in the 3 months to March 1. With the coronavirus outbreak happening afterwards, the grocer should see even more growth.




Morrison's share price

Last week Morrison's [MRW] share price closed up 1.3% at the end trading last week. The Bradford-based supermarket has been proactive in expanding its online delivery partnership with Amazon to cover 100 stores, with a total of 3500 new jobs being created to aid delivery.

For investors, the stock offers a 3.55% forward yield and a 251.79p price target - a 36% upside on the current share price.




Tesco’s share price

Tesco's [TSCO] share price is an outlier, having dropped over 14% since the coronavirus outbreak. Yet given the increased demand, the share price could start to gain. Right now Tesco is on an unprecedented hiring spree and is looking to hire 20,000 temporary staff for a minimum of 12 weeks.

Tesco’s profit to earnings multiple is cheaper than other super markets at 16.30, and a 269.93p price target from the analysts would see a 23% upside.



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