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On Monday, HSBC analyst Paul Rossington upgraded J Sainsbury PLC (LON:SBRY:LN) (OTC: JSNSF) stock rating from Hold to Buy, setting a price target of GBP2.85. This upgrade reflects a potential upside of approximately 22% from the current share price, following a recent decline in the company’s shares.
Rossington’s valuation is based on a Discounted Cash Flow (DCF) analysis, maintaining the previous assumptions, which include a Weighted Average Cost of Capital (WACC) of 9.9%. This WACC calculation considers a risk-free rate of 3.75% and a risk premium of 4.5%, with an additional 50 basis points to account for inflation risks. The beta used is 1.27, which is a blend, assuming the dynamics of Sainsbury’s non-food business, primarily Argos, should align more with Currys, for which a beta of 1.87 is used. For the grocery segment, a Bloomberg beta of 1.107 is applied.
The analyst has also held steady the terminal growth rate at 1% and a terminal margin assumption at 2.0%. These unchanged assumptions underpin the DCF-based target price.
The decision to upgrade J Sainsbury’s stock comes after a notable decrease in share value of around 7%, which occurred in the wake of a trading update from competitor Asda on Friday, March 14. Rossington’s analysis suggests that the sell-off may have provided a buying opportunity, as indicated by the new Buy rating.
J Sainsbury PLC, a leading retailer in the United Kingdom (TADAWUL:4280), operates supermarkets and convenience stores, along with the Argos chain, offering a wide range of products including groceries, clothing, and electronics. The company’s performance is closely watched by investors as a reflection of consumer spending patterns in the UK.
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