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Retailers showing robust momentum are poised for positive earnings surprises, according to RBC. The Canadian bank has identified JD Sports Fashion PLC (LSE:JD) and Marks and Spencer Group PLC (LSE:MKS) as standout performers in the retail sector.
RBC's analysis highlights a buoyant sentiment towards Marks and Spencer (M&S). The retailer's recent digital presentation underscored its confidence in future prospects. This optimism is bolstered by strong trends in the sportswear market, which continue to drive growth for JD Sports. RBC’s favorable view of these retailers is based on their appealing valuations and potential for positive earnings revisions.
JD Sports, with a projected price-to-earnings ratio of 11 times for calendar year 2024, and Marks and Spencer, at 13.5 times, are both seen as having significant upside potential. RBC emphasizes the attractiveness of these valuations, suggesting that they are well-positioned to benefit from favorable market conditions and potential earnings improvements.
Currys PLC also received an upgrade from RBC. Following last week’s results, the bank increased its share price target for Currys to 100p. The 1% lift in earnings forecasts is attributed to the company’s strong performance in its business-to-business (B2B) segment and ID Mobile, which have contributed positively to its financial outlook.
In contrast, Associated British Foods PLC (ABF) has not fared as well in RBC’s evaluation. The bank has revised its earnings forecasts downward by 3% for the current year and by 8% for the next year. This adjustment reflects concerns over ABF’s performance, leading to a reduction in the target price from 2,750p to 2,600p. The revised outlook indicates a more cautious stance on ABF’s ability to deliver strong results in the near term.
Overall, RBC’s analysis reflects a differentiated view of the retail sector. While the bank remains optimistic about retailers like JD Sports and Marks and Spencer, which are expected to perform well and potentially exceed earnings expectations, it adopts a more reserved approach towards companies like Associated British Foods that are facing challenges. This balanced perspective underscores RBC’s focus on identifying opportunities within the retail sector while acknowledging the varying performance levels across different companies.
