Broker snap: Supermarkets now attractively valued, JPM says
Date: Monday 07 Jul 2008
LONDON (ShareCast) - JP Morgan has raised its rating on J Sainsbury to ‘overweight’ from ‘neutral’ and on Tesco to ‘neutral’ from ‘underweight’, saying that valuations in the European food retail sector are attractive for the first time in two years.
It also lifts its price target on Tesco to 420p from 390p.
The broker said that share prices in the sector had overreacted to recent price warnings from Marks and Spencer and French supermarket Carrefour.
M&S said Wednesday that first quarter UK like for like sales fell 5.3% and warned that tough conditions are here to stay for two years. JPM cuts its price target on the clothes and food retailer to 200p from 345p and keeps its ‘underweight’ rating.
Shares in Carrefour fell heavily late last month as it warned that competition and the weak economic outlook would hit profits.
JPM said Wm Morrison stays as‘overweight’ and the price target falls to 310p from 340p, although it remains its top pick in the sector.
“Why should the Morrison share price, for example, react in any way to Carrefour’s non-food problems or to M&S company-specific food problems?” the broker asked.
JPM said J Sainsbury is trading below the replacement costs of its physical assets. Tesco offers good earnings visibility and good management, it said.
4.50p
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