Broker tips: Tesco, Sainsbury's, Cranswick, Weir, Easyjet, JD Sports

(Sharecast News) - JPMorgan Cazenove double upgraded Sainsbury's and Tesco on Thursday as it took a look at the outlook for European food retail. JPM upgraded both Sainsbury's and Tesco to 'overweight' from 'underweight', while its price target for Sainsbury's was upped to 310.0p from 304.0p, while Tesco's price target was hiked to 420.0p from 270.0p.

JPM said it sees upside risk to the FY25-26 outlook and consensus, noting that this was its first 'overweight' on Sainsbury's. It also said the UK grocery market should remain rational for longer.

"We assume the improved execution and relative price positioning at both TSCO and SBRY continues, in sharp contrast to strategies of margin preservation/maximisation at key rivals Asda/Morrison and discounters (circa 40% combined market share); we think that, in 2025, there will be higher price inflation, underpinned by an industry-wide pass through of cost inflation.

"This shall entail a constructive gross margin/CF/capital return outlook and therefore our above-the-Street expectations."

JPM said a recent pullback in Tesco and Sainsbury's created a good entry point into Christmas, with shares trading on 10-12x price-to-earnings and 9-10% free cash flow yield.

RBC Capital Markets downgraded food producer Cranswick to 'sector perform' from 'outperform' on Thursday but lifted the price target to 4,900.0p from 4,700.0p as it said it was a "great" business but "fairly valued".

RBC said it remains "enthused" by Cranswick's growth outlook, supported by strong execution, capacity expansion and premiumisation opportunities.

"However, we believe its attractive growth profile, impressive return on invested capital and quality of management team are at last reflected in the share price following almost 50% outperformance of the European consumer staples sector over the last three years," it said.

RBC said that even with its upgraded forecasts, it sees limited room for Cranswick to rerate further, with its shares already trading at a premium to some global conglomerates in the sector, including Nestlé.

"Following consistent over-delivery, sentiment towards Cranswick is understandably overwhelmingly positive, which also suggests to us that there is little room for anything but perfect execution," RBC said.

"We remain confident that Cranswick's capacity expansion and contract wins will continue to drive volume growth, while more premium offerings should be supportive of price/mix.

"However, price increases to offset labour/ National Insurance cost increases could impact on volume growth, preventing us from being more constructive on growth near-term and placing our profit before tax estimates in line with consensus expectations."

Analysts at Berenberg slightly raised their target price on engineering giant Weir from 2,450.0p to 2,500.0p on Thursday as it said long-term value was continuing to emerge.

Berenberg stated that following a period of sector outperformance by Weir in Q324, it had chosen to revisit its investment case for the group.

The German bank noted that Weir's order growth had stabilised and returned to growth in Q3, with a book-to-bill ratio back above 1x .

It also acknowledged that Weir has experienced strong original equipment order momentum in its minerals division, which "aligns well with long-term themes", such as energy transition and decarbonisation, that have supported its ongoing growth.

"We note that Weir's Q3 share price outperformance has been at the expense of more traditionally cyclical stocks in the engineering sector and we acknowledge the potential for a pro-cyclical rotation in the sector to favour some of the Q3 laggards as we enter 2025," said Berenberg, which stood by its 'buy' rating on the stock.

"However, we continue to see value in Weir if, as we expect, it continues to deliver on its strategic and financial model."

RBC Capital Markets has upped its target price for easyJet on the back of the budget airline's positive outlook statement in this week's annual results, saying the company is positioned for profit growth in the coming year.

Results for the year ended 30 September were in line with estimates but RBC is now estimating a 14% increase in pre-tax profit in the current financial year to £696m, well ahead of the current consensus forecast of £684m.

Pre-tax profit for the year to September 2026 is also tipped to rise to £767m, above the market forecast of £753m, helped by falling fuel unit costs, though the broker highlighted that its outer-year estimates still sit below consensus.

RBC raised its target price from 550p to 570p, but kept a 'sector perform' rating on the stock, saying it sees greater upside elsewhere in the sector.

The broker said it sees "attractions in the easyJet investment case" - such as strong expected growth in the holidays division - but also reasons for "remaining on the sidelines".

"We think the potential expansion of Gatwick airport could be a risk for easyJet since the company has highlighted the superior results delivered at capacity/slot-constrained airports. We see attractions in some peers trading at more attractive valuations (on EV/EBIT and PE multiples) and/ or generating higher margins/ returns."

JD Sports' share price took a dive last week after a gloomy third-quarter update, but analysts at Shore Capital reckon it's a good opportunity for investors to "get a foot in the door".

"It's fair to say that JD Sports has not been a good stock pick in the past six months, culminating in a disappointing 3Q FY25A trading statement," Shore Capital said in a research note on Thursday.

A slowdown in October sales, especially in the UK and US, resulted in the company guiding to full-year profits at the lower end of the £955m-1,035m guidance range. In the US in particular, Shore Capital highlighted that third-quarter like-for-like sales growth came in at -1.5% from +3.3% in the first half. "While the commentary highlighted the externalities driving this (US election, higher promotional activity, unseasonably clement weather, and no NPD from Nike), a turn around in the fortunes here will be key to improving investor confidence," the broker said.

Nevertheless, Shore Capital said it still remains positive on the medium-term outlook for JD Sports in the US, with the performance in Europe highlighting the growth opportunity for the business.

However, Shore Capital said that still indicates a substantial upside to current prices, noting that even including the recent rebound in the shares over the past week, the stock was still down 22% over the past month and 35% lower over the year to date.

"Despite this cut, the shares look cheap to us, currently trading on CY25F EV/Sales of 0.6x, EV/EBITDA of 4.0x and EV/EBIT of 7.8x we see this current weakness as a great entry price with significant mid-term upside if the company can deliver on its ex-UK growth potential," the broker said.