Despite the drop in sales Sainsbury’s shares are still rated a ‘buy’

Otmane El Rhazi from Mindful Money » Shares.

As Sainsbury’s updates the market with its first quarter results, Helal Miah, investment research analyst at The Share Centre, explains why the supermarket’s shares are still a ‘buy’ even though it continues to be hit by competition and food deflation…

In its first quarter trading statement reported this morning, Sainsbury’s said that its retail sales fell by 2.1% on a like for like basis. The Chief Executive noted that the ongoing competitive nature of the industry and the level of food deflation were clearly having an impact. However, investors should acknowledge that the share price rose by just over 2% at the opening following a number of positives in the statement.

The volume as well as number of transactions rose as the company continues to invest in improving the quality of over 3,000 own brand products to differentiate from its rivals and enhance its quality credentials. The convenience segment of the supermarket’s business remains in double digit growth mode following the opening of a further ten convenience stores. Furthermore, so far this year 20 click and collect stores have been opened with a target of 100 sites due to be completed by the end of the year.

Despite the challenging conditions, we recommend Sainsbury’s as a ‘buy’ for medium risk, income seeking investors. The company remains our preferred stock in the sector on the back of a good dividend pay-out alongside our belief that it will manage to hold onto market share as it implements several strategies to differentiate itself from its rivals.