On Wednesday, Jeronimo Martins SGPS SA (OTC:JRONY) (JMT:PL) (OTC: JRONF) stock received an upgrade from UBS, shifting the rating from Sell to Buy. Accompanying the upgrade, the price target was also increased to €23.00, up from the previous €18.50. The change in assessment comes with a forward-looking perspective on the company's financial performance, particularly in anticipation of the upcoming quarterly results.
The firm is bracing for Jeronimo Martins' second-quarter results on July 24, 2024, which are expected to reflect challenges, potentially marking a low point for the company with heightened margin and like-for-like (LFL) sales pressures.
Despite these short-term headwinds, UBS analysts signal optimism for the company's future, citing early signs of easing price competition in Poland following the pass-through of an April value-added tax (VAT) increase by retailers.
UBS suggests that their decision to upgrade the stock may be somewhat premature, preceding clear evidence of LFL and margin turnaround, which they anticipate will materialize around the second quarter of 2025.
However, they justify the move by pointing to the current low market expectations and valuations, which are at a multi-year trough, and the medium-term margin recovery potential they see for Jeronimo Martins.
The analysis by UBS indicates a favorable risk/reward profile for the company, with their scenario analysis suggesting an upside/downside ratio of 2.2:1. This implies that the potential for positive returns on the stock outweighs the risks of loss, according to their projections.
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