On Tuesday, Barclays (LON:BARC) upgraded Kerry Group PLC (KYG:ID) (OTC: KRYAY) stock, changing the rating from Equalweight to Overweight and increasing the price target from €90.00 to €97.00.
The firm cited the company's share price underperformance relative to its European Consumer Ingredient peers year-to-date as a primary reason for the upgrade. Despite this underperformance, Kerry Group has maintained resilient earnings momentum.
The analyst from Barclays highlighted that Kerry Group's price-to-earnings (PE) discount has expanded to over 40% compared to its 15-year average of 12%. With important company events on the horizon, including financial results due on July 31 and an Investor day scheduled for October 8, Barclays anticipates these could affirm the sustainability of Kerry's growth drivers, particularly in the Food Service sector.
The upgrade also takes into account a strategic shift in how Kerry Group allocates its capital. Barclays projects that the company's free cash flow (FCF) will increasingly be returned to shareholders, expecting continued share buybacks in 2025 and 2026. This strategy is seen as a counter to short seller criticisms from 2021, which had previously cast doubts on the company's performance.
Barclays' positive outlook for Kerry Group is further supported by the expectation that the ongoing share buybacks will contribute to improved returns for shareholders. This financial maneuver is anticipated to bolster confidence in the company's stock amidst previous skepticism.
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