Bank of America cuts WM Morrison forecasts but stays upbeat

13th Mar 2014 09:00

Bank of America Merrill Lynch has lowered its target price for WM Morrison after a rebased profit outlook from the supermarket group, but kept a 'buy' rating on the back of its long-term prospects.Annual results for the year ended February 2nd were in line with estimates, Bank of America said, with underlying pre-tax profit down 13% at £785m.However, as a result of the company's major strategic review, guidance for this year's underlying pre-tax profit is just £325-375m, "30-40% below consensus", according to the bank. As such, analysts have lowered their earnings estimates for this year and the next by 40% and cut their target price from 270p to 245p.The review will see WM Morrison invest £1bn over three years to lower costs, change promotions, improve brand competitiveness and introduce a loyalty programme. Meanwhile, it is also planning to sell £1bn of non-core property, which will help to drive an expected £2bn of free cash flow in the three years to 2016/2017."While the [profit] downgrade will certainly weigh on the shares, we think management's investment in the long-term positioning of the business and focus on cash generation is the right move strategically," Bank of America said.The stock was 6.35% lower at 218.2p by 09:36 on Thursday, after having trimmed losses which sent the shares down as much as 10% early on.BC