Jefferies cut its rating on Marks & Spencer shares to ‘hold’ with the company’s turnaround “finally recognised” by the market.
The rise in M&S’s share price after its half-year results reflected an improved short-term outlook and evidence that long-running problems had been resolved, Jefferies said.
Workplace and retail footfall recovery will help M&S’s clothing and homewares business and help mitigate dilution from hospitality and franchise food sales, the broker said. M&S is also making clear improvements in supply chain management and distribution and this is supporting strong full-price sales.
Analyst James Grzinic increased his estimate for 2022 revenue to £10.83bn from £10.68bn and for pretax profit to £533.7m from 459.5m. He raised his price target on M&S shares to 250p from 220p but downgraded the shares from ‘hold’ on valuation grounds.
“The easy lever of outsized earnings surprises on depressed multiples has been pulled,” Grzinic wrote in a note to investors. “Relative sector valuation has fully recovered. And earnings upside potential (vs buy-side expectations, rather than company guidance) looks limited given food margin reinvestment needs and a more uncertain demand outlook.”
Analysts at Berenberg raised their target price on drinks maker Diageo from £37.0 to £39.0 on Wednesday following the firm’s “upbeat” capital markets day.
Berenberg noted that ahead of Diageo’s recent capital markets day, the company had updated its 2022 full-year guidance, indicating that it was now expecting to deliver at least 16% organic net sales growth in the first half, and also committed to delivering medium-term organic sales growth within a range of 5-7% and organic operating profit growth of 6-9%.
While the analysts stated the medium-term guidance could be viewed as being in line with expectations, they reckon that the new explicit guidance reflects management’s confidence and leaves behind the uncertain times brought by the pandemic.
The German bank added that Diageo offers “attractive exposure to the outperforming spirits market of the US” and acknowledged that despite its “leading position in the US”, it had even managed to gain share through the pandemic, in contrast to the share losses experienced in the years preceding.
That said, Berenberg opted to retain its ‘hold’ recommendation on the stock as its preference among the large spirits players was still Pernod Ricard.
