LONDON (ShareCast) - Goldman Sachs has lowered its rating on Marks and Spencer to ‘neutral’ from ‘buy’ after the company reported a fall in first quarter like-for-like sales.

Goldman, which has a 235p target price on the retailer, said it was cutting forecasts to reflect deterioration in the consumer environment and structural difficulties in clothing and food sales.

Discount stores are likely to be the winners amid continued pressure in the UK food retail market, Goldman said.

Elsewhere in the food retail sector though, Merrill Lynch raised its rating on Tesco to ‘buy’ from ‘neutral’, saying it expects increased differentials in retailers’ performances in the coming period.

It says that the 30% fall in Tesco’s share price over the last six months makes the risk-reward on the stock more attractive.

However, it also sees signs that consumers tightened their belts in June, adding that the outlook still appears difficult, and cuts its price target on Tesco to 395p from 440p.

Merrill said the poor trading reported by Marks and Spencer yesterday was company specific.

While it sees Tesco starting to gain traction, it thinks J Sainsbury will come under pressure and Wm Morrison will continue to trade well.

Altium Securities has double-upgraded its rating on the sports shop chain JJB Sports to ‘buy’ from ‘sell’ after the company’s share price fell heavily following Marks and Spencer’s announcement of a fall in like-for-like sales yesterday.

Price moves in the retail sector brought several stocks’ value near or lower than their price targets, Altium said.

It also upgraded the high street store Woolworths, the men’s suit store Moss Bros and the fashion chain French Connection to ‘buy’ from ‘hold’ and the outdoor equipment specialist Blacks to ‘hold’ from ‘sell’.

ABN Amro has lowered its rating on Yell Group to ‘hold’ from ‘buy’ and slashed its target price on the directories group to 70p from 335p.

The broker said that if Yell breaches its banking covenants, banks may demand a less aggressive balance sheet structure as a price for refinancing the company’s debt.

A material rights issue may be needed, ABN Amro said.

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