Broker tips: Taylor Wimpey, Weir, JD Sports, Just Group

Jefferies upgraded Taylor Wimpey to ‘buy’ from ‘hold’ on Monday citing improving risk/reward.

Jefferies said the upside potential to EBIT forecasts at Taylor Wimpey appears some of the most pronounced in the sector, with the rights issue funded land purchases offering a pathway of volumes towards group capacity and still meaningful upside to previous/land bank margin levels.

"Execution risk remains key and confidence among investors will need to be regained," it said. "But with growing evidence of the robust market and upgrades at peers, the tide of improving sentiment we believe will once again capture Taylor Wimpey."

Engineer Weir rallied on Monday after Morgan Stanley upgraded the shares to ‘overweight’ from ‘equalweight’ and hiked the price target to 2,220p from 1,730p.

The bank said it sees a "solid end market setup for 2021" and that the recent 10% pullback provides an attractive entry point. The risk/reward screens well in a sector context, MS said.

Morgan Stanley said Weir's announced sale of its oil and gas division to Caterpillar last year was an important and clear change in direction, allowing the company to focus on its highest quality assets, serving mining.

MS noted that since the sale was announced in October, the shares have been strong outperformers, up 48% versus the FTSE 350 engineering index up 16%.

"It's clear the market has rewarded this strategic move," MS said.

RBC Capital Markets upgraded its stance on JD Sports on Monday to ‘outperform’ from ‘sector perform’ and lifted the price target to 950p from 900p as it noted the company has been able to strengthen its position during the pandemic in the "attractive" sportswear category.

"We think a combination of stronger digital sales, and better margins in the US should drive upside to guidance and consensus later this year," said RBC, which added the consumer shift towards health lifestyles combined with good product innovation should be positive for the sportswear outlook.

"The majority of customers prefer to shop in a multi-brand environment and Nike is now moving to reduce its number of distribution partners, both of which should be positive for JD Sports," RBC said.

"We think valuation remains reasonable given JD's double-digit sales growth and we see further upside should JD maintain its recent track record of superior execution and omnichannel sales growth."

Broker Peel Hunt initiated coverage of Just Group on Monday with a ‘buy’ rating and 120p price target.

"Just is at the tail end of repairing a strained capital structure," Peel said. "The process is now helping rebuild new business sales, which underpin future cash flow."

Meanwhile, it noted the share price has fallen well below the intrinsic value of the company’s in-force annuity book.

"Whilst the cash is still trapped, hence, for now, no dividends, the company trades at 0.4x SII Tier I NAV, well below the 0.7-0.8x of listed closed-book Life insurers. We believe this is an opportune moment to buy into a depressed valuation.