On Monday, Barclays (LON:BARC) adjusted its price target for B&M European Value Retail SA (BME:LN) (OTC: BMRRY) shares, reducing it to GBP6.15 from the previous GBP6.25. Despite this change, the firm retained its Overweight rating on the stock.
The adjustment follows expectations set by Barclays for B&M's first-quarter like-for-like (LFL) sales, which are anticipated to show a decline of 4.0%, marking the most significant drop in two years. This expected downturn is attributed to a combination of challenging year-over-year comparisons, the impact of the calendar, and adverse weather conditions.
Barclays projects that B&M will experience total sales growth of approximately 2% despite the anticipated decline in LFL sales. The firm also forecasts a rebound in positive LFL sales starting from the second quarter onwards. Barclays remains unconcerned about the retailer's profit margins, citing the company's prudent inventory management as a key factor in maintaining margin stability.
The long-term incentive plan (LTIP) analysis conducted by Barclays reinforces the firm's confidence in B&M's financial strategy and future performance. The Overweight rating suggests that Barclays continues to view B&M shares favorably, expecting them to outperform the broader market or sector average over a specified time horizon.
The new price target of GBP6.15 set by Barclays indicates the firm's adjusted valuation of B&M shares, reflecting the near-term challenges while also acknowledging the potential for future growth as indicated by the anticipated positive LFL sales in the upcoming quarters.
In other recent news, B&M European Value Retail SA has seen a downgrade from Morgan Stanley (NYSE:MS), moving from Equalweight to Underweight. The firm also lowered the price target for the company's stock to £4.33 from the previous £5.75. This decision comes in light of B&M's lagging like-for-like sales performance, consistently trailing the UK retail average and significantly behind Tesco (OTC:TSCDY), a key competitor.
The past three quarters have seen B&M's sales trending one percentage point below the UK retail average and 500 basis points below Tesco's. Morgan Stanley predicts this underperformance may continue due to both pricing and volume factors.
The firm also expressed concerns about the sustainability of B&M's current profit margins, given the significant gross margin expansion since the start of the COVID-19 pandemic and a widening price gap in fast-moving consumer goods.
As a result, Morgan Stanley has revised its earnings per share estimates for B&M downward by 11%, putting their projections 8% below the consensus average over the fiscal years 2025 to 2027.
Despite the stock's 15% de-rating year to date, Morgan Stanley does not view the shares as particularly inexpensive, noting that the stock is trading at 12.8 times the estimated earnings for fiscal year 2025, which compares unfavorably with the UK Retail sector average of 12.2 times.
InvestingPro Insights
As B&M European Value Retail SA navigates through its anticipated near-term sales decline, real-time data from InvestingPro provides a snapshot of the company's financial health. With a market capitalization of $5.55 billion and a P/E ratio hovering around 11.98, B&M's valuation reflects a market that is attentive to its earnings potential. Notably, the company has demonstrated a commitment to shareholders through consistent dividend payments, a significant factor considering the current dividend yield stands at 3.32%.
InvestingPro Tips highlight that B&M's stock has recently been in oversold territory according to the RSI, which could suggest a potential rebound opportunity for investors. Furthermore, the company has maintained dividend payments for 11 consecutive years, reinforcing its position as a reliable income stock. For readers looking to delve deeper into B&M's financials and future prospects, InvestingPro offers additional analysis and tips. With the use of coupon code uk10, readers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, gaining access to a wealth of insights, including 6 more InvestingPro Tips for B&M.
The company's resilience is also evident in its ability to remain profitable over the last twelve months, with analysts predicting profitability to continue this year. While the stock has faced downward pressure over the last month, the broader perspective provided by InvestingPro's metrics and tips can help investors make informed decisions about the stock's long-term value and potential for recovery.
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