JD Sports Fashion PLC (LSE:JD.) has the potential for a share price rerating in 2023, according to analysts at the RBC Capital Markets.
The price target was hiked to 185p from 150p, while the bank kept its ‘outperform’ rating on the stock.
RBC’s bullish outlook on the FTSE 100 sports retailer is built on the realisation that JD's customer base has been resilient amid the consumer squeeze.
Earnings forecasts were raised by RBC, on the back of these more resilient consumers and stronger product availability of key ranges, including Nike Air Force 1s, Dunks and Jordans.
A more resilient consumer is partly attributed to the employment and wage backdrop being stronger than the last financial crisis some 15 years ago, particularly among JD’s core, young customer base.
JD is also a net beneficiary of wage inflation, with RBC believing much of the hiked wages across the industry gets recycled back into the sector.
“We think a recovery to a multiple at least at the midpoint (14x) is now reasonable given JD’s global platform and growth prospects,” analysts wrote in a note to clients.
A 14x P/E ratio would equate to a share price of 220p, according to the broker, versus the last close at 156p.
2022 saw JD’s P/E ratio, used to determine the value of a stock, slip to 10x from the high mid-teens boasted at the end of 2021.
RBC notes several factors for this derating, specifically tough US comparatives, a concern over earnings momentum, inventory build-up and the concerns surrounding former boss Peter Cowgill.