Jefferies cuts M&S to 'hold' as valuation catches up

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."