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Morgan Stanley Analyst Says the Market Underestimates Tesco


Prospects look brighter for Tesco, the British supermarket chain, after Morgan Stanley upgraded the stock from equalweight to overweight, according to the Financial Times. Edouard Aubin, a Morgan Stanley analyst, thinks the market is “underestimating the UK margin upside from supplier co-operation and a better balance of supply and demand in the UK, ” and added that, “further, value can be released by the disposal of some international assets.”

Tesco, after losing 44% last year from its stock price, is now at the top of the FTSE 100. It seems that 2015 is expected to be better for Tesco than 2014 was, with profit warnings, accounting problems and gloomy predictions of lackluster holiday sales. Actually, British retailers performed better during the holiday season than anticipated. In addition, the boost in housing prices has helped retail. Anticipation of a stimulus from the European Central Bank has also been positive for retailers.

Late last year, CEO Dave  Lewis undertook a cost cutting plan that would reduce its head office, the dividend and pension scheme. The changes including relocating the  Tesco office from Cheshunt, where it was founded by Sir Jack Cohen, to Welwyn Garden City, in a move that was expected to reduce costs by 30%. Management said founder Sir Jack Cohen would have agreed with the move, since his motto was, “You can’t do business sitting on your behind.”

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