JD Sports Fashion PLC (LSE:JD.) has lost close to a quarter of its value after issuing profit warnings, with analysts such as those at Shore Capital scurrying to place the stock’s rating under review while they analyse what’s gone wrong.
However, Peel Hunt, the group’s house broker, has issued a research note of solidarity, stating that the current dip represents “a good opportunity to buy a high-quality, growing market leader”.
It claims that the weaker financials over Christmas were largely caused by external factors, such as a lack of exciting launches, cautious shoppers looking for deals and milder weather slowing the sales of winter range products such as coats.
“JD’s forecasts can’t defy these forces,” the house broker said before lowering its own forecasts for both the current and upcoming financial year.
Peel Hunt’s pre-tax profit guidance for the current year has been reduced from just over £1 billion to £920 million – on the lower end of JD’s newly adjusted £915 million to £935 million range.
Peel Hunt keeps its ‘buy’ rating for the stock and targets a 250p price, representing more than a 110% upside to the current 117p price.
Downgrades to come?
Shore Capital has placed its 'buy' rating on JD Sports under review after today’s “disappointing news” with a profit warning set around sales slightly behind management expectations alongside weaker than anticipated gross margin.
The broker noted that the revised pre-tax profit guidance of circa £915-935 million is slightly below the consensus expectation of £1.09 billion.
At the midpoint, this marks a notable 15% cut to its forecast, ShoreCap noted.
“We see a lot to like in JD, not least its balance sheet, but confidence in earnings estimates is a pre-condition of a positive equity case and so we place our buy stance under review,” it said.