Proactive Investors -
- FTSE 100 up 26 points at 7,648
- Superdry's CEO explores bid
- Morgan Stanley (NYSE:MS) ups Sainsbury , Tesco (LON:TSCO) top retail pick
Morgan Stanley ups Sainsbury, Tesco top pick, cuts AB Foods/Kingfisher
Some big moves in food and general retail stock prices following a note from Morgan Stanley - with Sainsbury up 3.0%, Tesco up 2.3% but AB Foods (LON:ABF) down 0.7%.
Morgan Stanley has made Tesco PLC its top pick in European Retail in a wide-ranging note that includes an upgrade for J Sainsbury (LON:SBRY) but downgrades for H&M, AB Foods and Kingfisher (LON:KGF).
The investment bank said its thesis for the year ahead is simple.
As price inflation moderates across geographies, top line growth will become increasingly reliant on volumes.
“We expect retailers who are in the sweet spot to be rewarded by the market, as volume-led top line growth should command a higher multiple and as volumes improve, margins stand to benefit from operating leverage.
The bank said the market is overly fearful of deflation and missing the bounce-back in volumes.
It expects volumes/mix to turn positive from the second quarter, driving 2025 annual growth of 2.5%.
On the inflation front, MS expects 1%-4% for the year ahead.
Tesco, rated overweight, is its top pick. “We see 6% EPS upside to Street,” the bank said.
It also expect the cash payout will be increased at the annual results (via extra buyback or divi) and has raised EPS estimates.
Morgan Stanley has upgraded Sainsbury to equal weight from underweight, predicting an improving margin outlook in grocery, plus launch of a buyback at its CMD. It has raised EPS estimates by 5% and 11% for the next two years.
But Primark owner AB Foods, has been cut to equal weight from overweight believing the margin recapture narrative has played out while there are risks to volume growth.
Kingfisher has been lowered to underweight from equal weight with Morgan Stanley expecting trends in DIY across UK / France / Poland to remain challenging for the next 12 months.
It expects consensus forecasts to come down a further 4%.
B&M remains at equal weight with M&S reiterated at overweight.
Nasdaq to soar after Meta and Amazon; jobs report to come
The Nasdaq is set to open sharply higher after gains in Meta and Amazon (NASDAQ:AMZN) after the market close although the mood could be soured depending on the US jobs report.
In pre-market trading, futures for the Dow Jones Industrial Average were up 0.1%, while those for the S&P 500 rose 0.5% and contracts for the Nasdaq 100 futures climbed 1.0%.
Meta shares are up 17% in pre-market trading after it declared its first ever dividend, a $50 billion buyback and better-than-expected sales while Amazon, up 7.2%, also beat the Street.
Apple (NASDAQ:AAPL) was more disappointing - shares down 2.4% - after weak Chinese sales cloude results.
Ahead of the US open, job figures are expected to show the US economy added 180,000 jobs in January, down from 216,000 in December.
Elsewhere, Chevron (NYSE:CVX) and Exxon Mobil (NYSE:XOM) are both up after earnings - Exxon posted full-year net income of $36 billion, down from $55.7 billion the previous year, but otherwise its biggest since 2012.
Chevron’s net income of $21.4 billion was down from $35.5 billion the previous year, but otherwise its strongest since 2013.