Analysts see further downside to Tesco's shares after another profit warning

9th Dec 2014 09:42

A surprise profit warning from Tesco on Tuesday sent its share price plummeting, though analysts still see more downside to the stock which has already halved since the start of the year.A number of profit downgrades, an accounting scandal and several senior-management changes have hammered the shares since the start of 2014, with the year-to-date fall now at 50% after Tuesday's near-11% slide.The supermarket chain has now said that on the back of changes and investments made recently to improve customer service and implement new procedures, trading profit for the financial year ending February 2015 is not expected to exceed £1.4bn. This compares with a figure of £3.315bn the year before and analysts' forecasts which ranged from £1.8bn to £2.2bn."If there had been hope that the market would be immune to yet another profit warning, this quickly evaporated as Tesco has provided profit guidance which is nearly 30% shy of an already lowered estimate," said Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers."Unfortunately, there remains only one constant amidst the turbulence, which is the market consensus. This remains rooted at a 'sell' and seems likely to remain so," he said.Meanwhile, analyst Mike Dennis from Canaccord Genuity said: "Management has added more staff hours and invested more in price and short-term money-off voucher tactics, but this implies UK grocery trading profit in the second half is negative due to lower sales on an already higher cost base."He said that the company has the most-developed multi-format strategy among its peers and is well-plied in the convenience market, but will need to "redeploy space" in its hypermarkets."All this could take several years and suppliers are not going to be disposed to Tesco given the negative industry volumes and poor performance of Tesco over the last two years."Dennis said that the stock trades at a premium to its main UK rivals which implies "a lot more downside risk to the shares".The stock was down 10.7% at 167.35p.