Can the Morrisons share price keep climbing higher?

Man shopping in supermarket

Over the past few months, the Morrisons (LSE: MRW) share price has surged. A spike in mid-June triggered by take-over plans has seen the share price deliver a 70% return over the past six months. In addition to this, fresh news that the firm could be added to the FTSE 100 seems to also be pushing the price higher. However, will this bullish trajectory continue for Morrisons?

Bidding war

The standout driver behind the Morrisons share price is the bidding war for its acquisition. This is between US private equity firms CD&R and Fortress and has been heating up over the past few months. CD&R had initially offered a £5.5bn bid which was declined by the Morrisons board after being considered undervalued. Fortress then entered the scene with an increased £6.7bn bid, a 272p share offer. This was recommended by the Morrisons board to investors. However, CD&R then came back with a £7bn offer which was accepted by Morrisons last week.

This £7bn offer marks a per-share value of 285p. When the offer news broke, the share price jumped from 279p to above 290p. Fortress has been left “considering its options”, but British takeover rules still allow Fortress to submit a higher offer. If this was the case and the bidding war continues, I think we could see the short-term Morrisons share price push higher. What’s more, there is talk among analysts that Morrisons partner Amazon could enter the bidding war. If this were to happen, prices could be pushed up even further.

Valuation problems

The bidding war seems to be good news for the short-term Morrisons share price. However, it has also led to a pretty steep valuation of the company. The current Morrisons price-earnings (P/E) ratio is 72.5 times. Comparing this with a similarly priced competitor like Tesco who has a P/E ratio of just 4 times begs the question of whether the Morrisons share price is vastly overvalued.

There are also further complications that Brexit has brought to the food retail sector. Worries of potential shortages well into 2022 are likely to halt growth in the industry. Industry leaders have urged the government to relax immigration rules to fill growing gaps in the workforce. Moving forward, this could be a major concern for the Morrisons share price.

Morrisons share price: the verdict

The short-term price moves will be made in reaction to new bidding news. This could certainly push the Morrisons share price higher. However, this is too hypothetical for me to add Morrisons to my portfolio just yet. I prefer to focus on the tangibles such as valuation and Brexit. For me these factors currently outweigh the opportunity the bidding price war brings. Therefore, although I believe the Morrisons share price could theoretically climb higher, I won’t be adding it to my portfolio today.

The post Can the Morrisons share price keep climbing higher? appeared first on The Motley Fool UK.

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Dylan Hood has no position in any of the shares mentioned above. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended Morrisons and Tesco and has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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