On Monday, UBS initiated coverage on Marks and Spencer Group Plc (LON:MKS:LN) (OTC: MAKSY (OTC:MAKSY)) stock, issuing a Buy rating with a price target set at GBP4.35.
The firm 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 (C&H) and Food sectors.
Despite Marks and Spencer's significant share price increase over the past year, with a 61% rise, UBS suggests that the market is only acknowledging the near-term momentum.
UBS projects that the company's pre-tax profits (PBT) will surpass Visible Alpha Consensus (VA Cons) estimates by 3%, 4%, and 5% for the fiscal years 2025, 2026, and 2027, respectively, as it anticipates continued market share gains.
UBS points out that Marks and Spencer's stock is currently trading at 13 times its earnings, which is only within one standard deviation of its long-term average. This valuation, according to UBS, does not reflect the improvements in the business that have enabled it to win market share in both Clothing & Home and Food.
The firm also highlighted upcoming events that may reveal the extent of Marks and Spencer's structural outperformance: the first-half results on November 6, 2024, and the Capital Markets Event on November 12, 2024.
UBS anticipates that these disclosures could lead to a re-rating of the company's shares to at least match the levels of Next Plc (16 times earnings) and Tesco (OTC:TSCDY) Plc (14 times earnings), or potentially even higher, as Marks and Spencer is gaining market share at a faster rate in the Food and Fashion segments compared to these competitors.
InvestingPro Insights
As UBS initiates coverage on Marks and Spencer with a bullish outlook, real-time data from InvestingPro provides additional context to the company's financial health and market performance. With a market capitalization of $10 billion and a P/E ratio of 17.15, Marks and Spencer appears to be valued at a level that could interest investors looking for retail sector exposure. This is especially relevant given the company's strong free cash flow yield, as indicated by one of the InvestingPro Tips, which suggests that the company's valuation may be attractive.
InvestingPro data also shows that Marks and Spencer's revenue has grown by 9.29% over the last twelve months as of Q4 2024, with a gross profit margin of 34.19%. This financial performance could underpin the UBS's argument that the market may not fully recognize the company's potential. Additionally, the stock's price movements have been quite volatile, another InvestingPro Tip, which may present opportunities for investors with a higher risk tolerance.
For investors interested in further analysis and metrics on Marks and Spencer, InvestingPro offers additional tips and insights. There are 12 more InvestingPro Tips available, providing a comprehensive view of the company's financial health and market performance. For more in-depth information, investors can visit https://www.investing.com/pro/MAKSY.
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