UBS has initiated coverage on Marks and Spencer Group Plc (LON::LN) (OTC: MAKSY) stock with a Buy rating and a price target of GBP4.35. The firm believes that the current market valuation does not fully acknowledge 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 a significant share price increase of 61% over the past year, UBS suggests that the market is only focusing on near-term momentum. UBS projects that the company's pre-tax profits (PBT) will exceed Visible Alpha Consensus (VA Cons) estimates by 3%, 4%, and 5% for the fiscal years 2025, 2026, and 2027, respectively, as it expects 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 Plc (14 times earnings), or potentially even higher.
InvestingPro Insights
Real-time data from InvestingPro provides additional context on Marks and Spencer'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. The company's revenue has grown by 9.29% over the last twelve months as of Q4 2024, with a gross profit margin of 34.19%, supporting UBS's argument that the market may not fully recognize the company's potential.
InvestingPro data also shows that the stock's price movements have been volatile, presenting opportunities for investors with a higher risk tolerance. For investors seeking further analysis and metrics on Marks and Spencer, InvestingPro offers additional tips and insights.
In conclusion, UBS's Buy rating on Marks and Spencer highlights the company's potential for structural outperformance in the Clothing & Home and Food sectors. With projected profit surpassing estimates and upcoming events that could lead to a re-rating of the stock, investors may find value in considering Marks and Spencer as a potential investment opportunity.