Barclays changed its price target on B&M European Value Retail SA (BME:LN) (OTC: BMRRY) shares on Monday, cutting it to GBP6.15 from GBP6.25. Despite the change, the firm maintained an Overweight rating on the stock.
The adjustment follows Barclays’s expectation for B&M’s first-quarter like-for-like (LFL) sales to fall 4.0%, marking the biggest decline in two years. The forecast decline is attributed to a combination of difficult year-on-year comparisons, calendar impacts and adverse weather conditions.
Barclays expects B&M to post total sales growth of around 2% despite the expected decline in LFL sales. The company also expects positive LFL sales to resume in the second quarter. Barclays is not concerned about the retailer’s profit margins, citing the company’s prudent inventory management as a key factor in maintaining margin stability.
Barclays’ Long Term Incentive Plan (LTIP) analysis strengthens the company’s confidence in B&M’s financial strategy and future performance. The Overweight rating indicates that Barclays continues to view B&M shares positively, expecting them to outperform the broader market or sector average over a given time horizon.
Barclays’ new price target of GBP 6.15 indicates the firm’s fair valuation for B&M shares, reflecting short-term challenges while acknowledging the potential for future growth, as indicated by positive LFL sales forecast for the coming quarters.
In other recent news, B&M European Value Retail SA was downgraded by Morgan Stanley from Equalweight to Underweight. The firm also lowered its price target for the company’s stock to £4.33 from £5.75 previously. The decision was made in light of B&M’s delays in like-for-like sales, still below the UK average and significantly behind Tesco, one of its main competitors.
Over the past three quarters, B&M sales have been one percentage point below the UK average and 500 basis points below Tesco. Morgan Stanley expects this underperformance to continue due to both price and volume factors.
The company also raised concerns about the sustainability of B&M’s current profit margins, given the significant expansion in gross margin since the start of the COVID-19 pandemic and the widening price gap in fast-moving consumer goods.
As a result, Morgan Stanley lowered its earnings per share estimates for B&M by 11%, putting the projections 8% below the consensus average for fiscal years 2025 through 2027.
Despite the 15% year-over-year de-rating, Morgan Stanley doesn’t think the stock is particularly cheap, as the stock trades at 12.8 times estimated fiscal 2025 earnings, which compares unfavorably with the UK retail sector average being 12.2 times.
InvestingPro Insights
As B&M European Value Retail SA navigates expected short-term sales declines, real-time data from InvestingPro provides a snapshot of the company’s financial health. With a market capitalization of $5.55 billion and a P/E ratio of around 11.98, B&M’s valuation reflects a market attentive to its earnings potential. In particular, the company has demonstrated a commitment to shareholders through the payment of consistent dividends, a significant factor considering that the current dividend yield is 3.32%.
InvestingPro tips highlight that B&M stock has recently been in oversold territory according to the RSI, which could suggest a potential rebound opportunity for investors. Additionally, the company has maintained dividend payments for 11 consecutive years, strengthening its position as a reliable income stock. For readers looking to delve deeper into B&M’s financials and future prospects, InvestingPro offers further analysis and recommendations. Using the coupon code PRONEWS24readers can get an additional 10% off a one- or two-year Pro and Pro+ subscription, gaining access to a variety of insights, including 6 more InvestingPro tips for B&M.
The company’s resilience is also evident in its ability to remain profitable over the past twelve months, and analysts expect profitability to continue this year. While the stock has been under downward pressure over the past month, the broader perspective provided by InvestingPro’s metrics and tips can help investors make informed decisions about the stock’s long-term value and recovery potential.
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