Analysts at Berenberg lowered their target price on supermarket giant J Sainsbury from 285.0p to 235.0p on Monday, stating discretionary spending exposure had dampened the outlook for the stock.
Berenberg said Sainsbury’s faces cost inflation pressures and was exposed to a discretionary spending squeeze via Argos, but did note that its self-help opportunities provided some profit levers.
The German bank stated free cash flow generation and sustained de-leveraging could make excess capital returns a feature of Sainsbury’s equity story, although it also highlighted that this was something that was “unlikely to happen in 2022”.
Berenberg said it had updated its forecasts for the group’s full-year 2022 results and noted the cut to the stock’s target price came as a result of it lowering estimates and target multiple to reflect the market de-rating.
The analysts said Sainsbury’s trades on 10.2x FY 2023 P/E and 12.3x EV/EBI
Berenberg also maintained its ‘hold’ rating on the stock and said it continues to prefer buy-rated Tesco among UK grocers, given fewer earnings risks from discretionary retail demand.
Reporting by Iain Gilbert at Sharecast.com
