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On Thursday, Deutsche Bank (ETR:DBKGn) analyst Richard Stuber revised the price target for Greggs Plc. (LON:GRG:LN) (OTC: GGGSF), a prominent UK-based bakery chain, to £13.30, down from the previous target of £20.00. Despite the reduction, the analyst has kept a Sell rating on the company’s shares.
Stuber’s decision comes as Greggs faces a series of financial challenges, including decelerating like-for-like (LFL) sales, rising operational expenses—especially labor and food costs—and increased net interest costs. Additionally, the company has indicated that margins are expected to be under pressure in the medium term due to the costs associated with starting up two new sites in the Midlands.
The analyst’s report suggests that while margins and return on invested capital (ROIC) may eventually recover to their 2024 levels, this recovery is not anticipated to occur before the end of the decade. With the expectation of mid-single-digit LFL growth and a negative profit before tax (PBT) compound annual growth rate (CAGR) in the medium term, Deutsche Bank has shifted its target price methodology to 12 times the forecasted earnings per share (EPS), aligning Greggs with a broader group of lower-growth peers.
The new price target of £13.30 implies a nearly 25% downside potential to the current share price of Greggs stock. The analysis by Deutsche Bank reflects concerns about the company’s near-term profitability and growth prospects amidst a challenging operational environment.
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