Why the City loves M&S and Sainsbury’s shares

The £4 argument for Marks & Spencer Group (LSE:MKS) shares grew louder today as another City firm raised its price target amid mounting global interest in the retailer’s FTSE 100 resurgence.

Jefferies, which sees a further 17% upside for shares to 410p, believes a “pro-cyclical UK mindset” has placed the stock on the watchlists of more international investors.

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The bank’s upgrade follows similar moves yesterday by counterparts at RBC and Barclays after they shifted to 400p in order to keep up with a strong run for shares over the summer.

M&S reached midday at 365.3p, representing an increase of 49% since mid-April and a level more than 70% higher than October. The last time they traded at 400p — the same price as Philip Green’s rejected takeover approach in 2004 — was in 2016.

Source: TradingView. Past performance is not a guide to future performance.

Jefferies now values M&S on 14.5 times 2025’s earnings, which is at the upper end of history and up from 12.7 times previously.

The bank sees profits growth of 10% this year and 7% in the next, with interim results due on 6 November set to show another half year of sustained market share growth.

Jefferies’ forecast for a 5% year-on-year rise in half-year adjusted profits to £367 million compares with the City consensus of £358 million and 2022-23’s £205.5 million.

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It has nudged up its estimates by 2% across all its forecast years, driven by strong volume growth in M&S’s food halls.

The bank’s new estimates include half-year earnings in food of £202 million based on a margin of 4.8%, much more optimistic than City forecasts for £172 million and 4.2% respectively.

It is more cautious on the clothing and home division with an earnings target of £201 million. That’s below the City’s £222 million consensus as Jefferies reflects the increased cost profile seen in the second half of last year.

In a separate note published today, the bank is also more upbeat on Sainsbury (J) (LSE:SBRY)’s after lifting its price target on the Argos owner from 300p to 325p — an upside of 8% on today’s level.

The bank reiterated its full-year estimates amid continued top line progress in the UK grocery division alongside tougher trading conditions in general merchandise.

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Jefferies said the potential impact of poor summer weather on Argos has dominated the City focus heading into half-year results on 7 November.

It added: “This likely misses the full picture given the new normal of grocery growth seems to be still-rapid market share gains and an industry recovering volume/mix.”

On Friday, UBS upgraded its price target from 295p to 321p after forecasting a strong first-half grocery performance. It added: “We see Sainsbury’s positioning in the industry as very strong at a time when we see several constrained operators losing market share.”