World’s Second-Largest Retailer Is Deep Value Stock: Pro

Shares in French retail giant Carrefour have a very low valuation and represent a good long-term investment opportunity thanks to recent management changes and growth in markets outside France, Scott Evans, co-head of equity research at Espirito Santo Investment Bank, told CNBC.

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Evans has recently changed his recommendation on Carrefour — the world's second-largest retailer after Wal-Mart Stores — to “buy.” He had kept a “sell” recommendation on the retail giant for three years prior to that change. Speaking on CNBC’s “Worldwide Exchange,” Evans said that Carrefour could be an ideal stock to hold amid rising market volatility.

“Picking stocks in this environment is pretty tough. So, if I’m looking for anything, especially on the buy side, it’s taking a more long-term view, so the stock has to have deep value or defensive qualities,” Evans said. “Carrefour doesn’t have defensive qualities, but it is rapidly becoming a deep value stock.”

Carrefour shares have lost around 50 percent of their value over the past 12 months.

The group has accelerated the transition to a new CEO, who is tasked with turning around the company’s fortunes. George Plassat, who took over at the helm of the company on May 24, is seen by Credit Suisse analysts as helping “sustain long-overdue radical change” at Carrefour.

The company has also recently announced an overhaul of its hypermarket product lines as it continues to battle weak sales in Europe. First-quarter sales in France excluding petrol fell 0.5 percent on the year, while sales in the rest of Europe dropped 2.7 percent.

Evans explains that although the retail environment in the euro zone is still very challenging for Carrefour, sluggish revenue performance will be offset by growth elsewhere.

“George Plassat has a monumental task in front of him, given how the French retail market is operating currently, with the private operators continually eroding margins, continually being very aggressive on market share,” Evans said, “but just from a valuation point of view, if you add up the Latin American business and the Asian business, you’re almost getting the French business for free.”

Evans stressed that as a deep value stock, investors should look at Carrefour for the long term.

“It’s certainly not a short-term trading call. This is about whether it’s reached the bottom, whether it can do enough now to turn its margins around or at least stabilize them,” Evans said. “There’s a lot of self-help still to be done within Carrefour. It doesn’t do much in terms of its own products, I think it’s pretty weak on buying, it’s been pretty weak on loyalty schemes.”

Carrefour CEO Plassat may reveal further details of his restructuring plan at the company’s annual shareholder meeting on June 18.

—By CNBC’s Vittoria Pirone

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Neither Scott Evans nor Espirito Santo Investment Bank own shares in Carrefour.