RBC Capital Markets has raised its price targets for Kingfisher and ASOS while cutting its target for JD Sports, as it warned of a tougher outlook for UK consumer spending.
The broker lifted its target for Kingfisher, the owner of B&Q and Screwfix, to 375p from 350p and raised its earnings forecasts for the next two years by 7%.
It said Kingfisher's first-half profits beat expectations in every region, helped by higher gross margins, tighter cost control and stronger sales in Poland.
The shares trade on about 11 times next year's expected earnings and offer a dividend yield of about 4%, with RBC keeping its outperform rating.
ASOS, the online fashion retailer, had its target raised to 450p from 400p after the broker increased its profit forecasts by 3% to 4%.
RBC kept its sector perform rating, saying ASOS still had to prove it could deliver profitable growth.
JD and Sainsbury's trimmed
The broker cut its target for JD Sports, the trainers retailer, to 90p from 95p and trimmed its earnings forecasts by 1%.
It said JD remained a bet on a recovery at Nike, which accounts for 35% of sales, and on the US consumer, which accounts for 38%.
RBC described market expectations of 7% profit growth next year, following a likely 15% fall this year, as demanding.
It also trimmed its Sainsbury's earnings forecasts by about 1% because of softer industry volumes, but kept its outperform rating and 400p target.
Squeeze on households
RBC expects UK household cash flow before savings to grow by about 3% this year, slowing to about 1% in 2027.
It blamed higher mortgage, transport and utility costs, with the energy price cap set to rise by more than 20% in January.
Real wage growth remains positive, but only just, according to the broker.
It said lower-income households were particularly vulnerable because they had little or no savings to fall back on.
Budget watch
RBC expects next month's Budget to shift more of the tax burden onto wealth rather than income.
It suggested the government could raise capital gains tax and stop paying interest on Bank of England reserves to fund a higher income tax personal allowance.
That would help the lowest earners, the broker said, although it doubted wealth taxes would raise as much as the government hoped.
Self-help favoured
Given the uncertain outlook, RBC prefers retailers that can lift profits through their own efforts at attractive valuations.
It named B&M and Currys as fitting that description, and said Next's international growth could offset pressure on its UK stores.
The broker remains cautious on Associated British Foods, the owner of Primark, and 3i Group, the private equity firm, both of which it rates underperform.
