Jefferies upgrades Marks & Spencer to “buy,” downgrades Sainsbury to “hold”

Investing.com -- Jefferies in a note dated Thursday has raised its rating on Marks & Spencer Group (LON:MKS) plc to “buy,” setting a new price target of 440p, up from 370p. 

The brokerage simultaneously downgraded J Sainsbury plc (OTC:JSAIY) to “hold,” maintaining its target price at 300p. 

The changes reflect diverging share price trajectories and expectations for medium-term performance rather than major shifts in underlying business outlooks.

Analysts cited several reasons for the Marks & Spencer (OTC:MAKSY) upgrade. They noted the company’s continued strong fundamentals, particularly within a strong U.K. consumer environment. 

Jefferies acknowledged moderated buyside expectations for M&S profit in fiscal 2025/26 and said there was no current evidence that the company’s recent cyberattack would impact its market share gains in the medium term.

Jefferies adjusted its estimates for Marks & Spencer’s pre-tax profit in 2025/26, initially carrying forward a £35 million beat from 2024/25, resulting in a base figure of £935 million before accounting for cyberattack impacts. 

After deducting a £300 million cyber-related cost and applying £150 million in expected insurance and cost mitigation recoveries, the revised pre-tax profit stands at £783 million for the year. The analysts project earnings to recover to £1.03 billion in 2026/27.

Valuation metrics show that the stock has derated significantly relative to UK peers such as Tesco (OTC:TSCDY) and Sainsbury (LON:SBRY), as well as broader European discretionary retailers. 

M&S is now trading at a price-to-earnings ratio of 10.6x, compared to its post-cyberattack 25/26 forecast of 16.1x and a normal UK retailer range of 9x to 13x. 

Jefferies said this re-pricing reflects more sustainable investor expectations, supporting the case for upside.

In contrast, the downgrade of Sainsbury to Hold is not rooted in changes to the company’s earnings outlook.

Jefferies maintained its 300p price target, pointing instead to recent share price outperformance as the primary factor behind the rating shift. 

“Our move to Hold entirely reflects the shares’ recent outperformance,” the analysts said, adding that the fundamental view on Sainsbury’s food space growth and cost-saving efforts remains intact.

For Sainsbury, Jefferies projects 4.5% retail sales growth in 2025/26, followed by 3% in 2026/27. 

The group EBIT margin is expected to improve from 3% in 2025/26 to 3.4% the following year.