Marks & Spencer stock remains a Buy as recovery plan drives strong sales growth - HSBC

On Wednesday, an HSBC analyst increased the price target for Marks and Spencer Group Plc (LON:MKS:LN) (OTC: MAKSY (OTC:MAKSY)) to GBP4.25 from GBP3.80, while maintaining a "Buy" rating on the stock.

The adjustment reflects the company's successful implementation of its 'Reshape for Growth' strategy, which has led to a repositioned food offering and a shift from promotional activities to an Every Day Low Price (EDLP) approach, including the introduction of lower-priced 'Remarksable' ranges.

The analyst noted that these changes have enhanced Marks and Spencer's value proposition and expanded its food market. Additionally, the recovery in Clothing & Home like-for-like sales has been driven by a product-led recovery, with improvements in fashionability and a reduced SKU count allowing the company to focus on better-selling items.

This strategy has fortified Marks and Spencer's leading positions in key categories such as women's denim, lingerie, knitwear, men's formalwear, and school uniforms, as well as in new categories like activewear.

Marks and Spencer's online growth is aligning with broader omni-channel trends, and the company is seeing positive returns from its store rotation and renewal program, with further progress expected over the next four years.

The acquisition of Gist in the fiscal year 2022 has enabled the company to modernize its food supply chain more rapidly. Marks and Spencer has also made strides in its Clothing & Home supply chain, which presents multi-year efficiency opportunities.

The company has increased its cost reduction target to GBP500 million by the fiscal year 2028, which significantly lowers the risk for the fiscal years 2025-2028 outlook.

The analyst highlighted that improving food sales could lead to better-than-expected consensus forecasts. According to NielsenIQ UK grocery market data, Marks and Spencer's sales grew by 12.4% in the 12 weeks leading up to September 7, outperforming the overall market's 4.4% growth.

The report concluded with an expectation of lower interest rates, real wage growth, and a rebound in consumer confidence, which could stimulate an increase in discretionary spending.

In other recent news, UBS initiated coverage on Marks and Spencer Group Plc, issuing a Buy rating with a price target set at GBP4.35. UBS believes that the current market valuation does not fully recognize the potential for Marks and Spencer to structurally outperform and sustain midterm market share gains in both Clothing & Home and Food sectors.

The firm projects that the company's pre-tax profits will surpass Visible Alpha Consensus estimates by 3%, 4%, and 5% for the fiscal years 2025, 2026, and 2027, respectively, anticipating continued market share gains.

UBS also highlighted upcoming events that may reveal the extent of Marks and Spencer's structural outperformance: the first-half results and the Capital Markets Event.

UBS anticipates that these disclosures could lead to a re-rating of the company's shares to at least match the levels of competitors like Next Plc and Tesco (OTC:TSCDY) Plc, or potentially even higher, as Marks and Spencer is gaining market share at a faster rate in the Food and Fashion segments. These are the recent developments in the company.

InvestingPro Insights

Recent data from InvestingPro adds weight to the analyst's positive outlook on Marks and Spencer Group Plc (OTC: MAKSY). The company's market capitalization stands at $9.87 billion, reflecting its significant presence in the retail sector. MAKSY's P/E ratio of 16.79 suggests a reasonable valuation relative to its earnings, aligning with the analyst's optimistic view on the stock's potential.

InvestingPro Tips highlight that MAKSY has shown a strong return over the last three months, with data confirming an impressive 40.62% price total return over this period. This performance supports the analyst's observations about the company's successful implementation of its 'Reshape for Growth' strategy. Additionally, the stock has demonstrated a robust 82.33% price total return over the past year, indicating sustained investor confidence in the company's turnaround efforts.

The company's revenue growth of 9.29% in the last twelve months and a healthy gross profit margin of 34.19% further validate the analyst's positive stance on MAKSY's improving sales and market position. These metrics suggest that the company's strategic initiatives, including its repositioned food offering and product-led recovery in Clothing & Home, are yielding tangible results.

For investors seeking more comprehensive insights, InvestingPro offers 11 additional tips for MAKSY, providing a deeper understanding of the company's financial health and market position.

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