Bank of America (BofA) has identified JD Sports Fashion PLC (LSE:JD.), the world's largest sports lifestyle retailer, as a significantly undervalued entity in the market, maintaining a 'buy' rating for the company.
Despite its leading market position, JD's stock price does not fully reflect its growth potential, according to BofA's analysis. The retailer trades at just nine times calendar year 2024 earnings (CY24E).
JD has focused on enhancing governance and investor communication over the past year, a move expected to attract a broader investor base.
Despite JD underperforming in its sector since August, BofA views this as an opportune moment for investment in the retailer. The company is on track to meet its profit targets and store rollout plans for FY24E.
BofA forecasts a 9% revenue compound annual growth rate (CAGR) for JD Sports from FY24 to FY27, outstripping the industry average.
This growth is anticipated to stem from like-for-like (LFL) sales and space expansion, particularly in the United States, where JD plans to more than double its store count over the next five years.
The company's strong balance sheet, with a leverage ratio of 0.4 times and £1.4 billion in available cash, supports its expansion and potential mergers and acquisitions.
Despite investor concerns about the US market, JD has shown robust trading performance relative to peers. BofA's analysis suggests that JD, with its strategic initiatives and financial strength, presents an attractive investment opportunity, undervalued in the current market.
The BofA price target of 233p is a 55% premium to the current share valuation 150.4p (up 4% on the day).