Repositioning Should Help Buffett’s Worst Major Holding of 2012: Tesco Corporation (USA) (TSCO), Wal-Mart Stores, Inc. (WMT), Target Corporation (TGT)

Renewed focus on FCF

Management has undertaken a restructuring of the company over the past few years.  The CEO appointed and managing director of its UK operations, a new position, that will allow him greater focus on European and challenged operations in the rest of the world.  Tesco Corporation (USA) (NASDAQ:TESO)’s core business has started to stabilize and it is exiting the US and Japan, where its effort to penetrate these markets were unsuccessful.  Expectations are for a decline in capex over the coming years with less focus on square footage growth and more on improving same store sales.  It is in the midst of a remodeling/refreshing its stores in the UK in order to accomplish this.  The change in focus should lead to increased free cash flow generation and ability to return cash to shareholders via dividends and repurchases.  Along these lines, Tesco has increased its dividend for 28 consecutive years.

Conclusion

Tesco Corporation (USA) (NASDAQ:TESO) is worth further investigation and possibly positioned to outperform in 2013.  Its UK operations are improving, news flow on its international front will not likely get worse and FCF is expected to improve leading to increased dividends and share repurchases in the near-term.  This company could look better for Berkshire this year.

The article Repositioning Should Help Buffett’s Worst Major Holding of 2012 originally appeared on Fool.com and is written by Mike Thiessen.

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