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On Thursday, Marks and Spencer Group Plc. (LON:MKS:LN) (OTC: MAKSY (OTC:MAKSY)), currently valued at $10.31 billion, saw its stock rating upgraded by Jefferies from Hold to Buy, accompanied by an increase in the price target to GBP4.40 from GBP3.70. The uplift in the company’s outlook by the firm comes after a reevaluation of the stock’s position following a recent cyberattack. The company’s shares have demonstrated strong momentum, delivering a remarkable 41.39% return over the past year. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value calculations.
Jefferies cited a significant change in the market’s expectations as a reason for the revision. The cyberattack led to a more normalized stance on the stock, with its price-to-earnings (P/E) premium over competitors Tesco (OTC:TSCDY) (TSCO:LN) and Sainsbury ’s (LON:SBRY:LN) decreasing from 14% in April to a current discount of 9%. The company currently trades at a P/E ratio of 15.19, while maintaining solid revenue growth of 6.87% and earning a "GREAT" overall financial health score from InvestingPro. Additionally, compared to a broader range of European consumer discretionary companies, Marks and Spencer’s P/E premium has also reduced notably.
The new price target of 440 pence reflects a P/E ratio of 16.1 times for the fiscal years 2025/26, which is expected to drop to 12.3 times in 2026/27. This valuation stands above the current P/E ratio of 10.6 times and is at the higher end of the typical range for UK retailers, which is between 9 and 13 times. Jefferies believes this premium is justified by Marks and Spencer’s potential to gain market share.
The analyst from Jefferies highlighted that the downgrade of Marks and Spencer to Hold in February was driven by concerns that the buy-side profit before tax (PBT) expectations for the years 2025/26 were overly optimistic compared to the company’s own forecasts. However, the market correction post-cyberattack has brought expectations in line with what the company might be willing to commit to.
Marks and Spencer’s stock adjustment aligns with Jefferies’ assessment of the company’s prospects. The firm’s analysis suggests that the retailer is positioned to outperform within the UK retail sector, considering its market share growth potential. InvestingPro has identified several bullish indicators for the company, including a strong free cash flow yield and attractive valuation relative to near-term earnings growth. InvestingPro subscribers have access to over 30 additional financial metrics and insights that could help evaluate the company’s growth trajectory.
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