Jefferies upgrades Sainsbury's to 'buy'

Jefferies said it had "fractionally" trimmed estimates for Sainsbury's for the year ahead as it opted to take "a more cautious view" on Argos sales pressures and a slightly greater loss of share within a more inflationary grocery market.

The bank, which stood by its 300.0p target price on the stock, noted that its estimates for the group were now broadly in line with consensus estimates at £719.0m.

Jefferies said it had noted the extent to which current valuation levels de-risk shareholders from meaningful downside, with Sainsbury's stock troughing at around 12x following a mid-teens rebasing in mid-term earnings expectations back in the midst of the global financial crisis.

However, Jefferies said the critical difference in the business between now and then was "a vastly improved capital structure", which major balance sheet strengthening seeing adjusted leverage reduce from 3.7x to a likely current level of around 3x.

"We expect the company to outline a refreshed capital allocation process with its 28 April finals, one which will provide visibility of a greater alignment between FC and distributions to shareholders," added Jefferies.