J Sainsbury plc (LON:SBRY) shares have the capacity to rise by over a quarter, according to the number crunchers at Credit Suisse this morning, which looked at the wider sector as part of its research.
The market itself is still in structural decline, CS analyst Stewart McGuire and his team reckon, with the discounters continuing to nab market share from the big domestic operators.
However, much of the pain is being borne by Wal-Mart Stores-owned (NYSE:WMT) ASDA, rather than the three quoted grocers – Sainsbury, Wm Morrison Supermarkets PLC (LON:MRW) and Tesco PLC (LON:TSCO).
Sainsbury, CS reckons, is worth 315p a share (up from 290p) with the current 250p share price valuing the business at just 12 times 2017 earnings. It reckons the takeover of Argos could add 20% to earnings three years down the road.
Credit Suisse has also taken a more benign view of Tesco (the price target is notched up 15p to 130p) and Morrisons, where the valuation goes up 20p to 200p.
The Swiss bank keeps its ‘underperform’ rating on the former and its ‘neutral’ on the latter.
“Our premise remains that there is a structural decline happening in the traditional supermarket sector, largely driven by oversized stores, a move towards discounters, a shift to online and growth in ‘mass-market specialty’ grocers such as Waitrose and M&S,” said McGuire and his team in a note.
“However, as in virtually all shifts, the trend is never in a straight line. The incumbents have fought back, and with some success – Morrisons recently posted a quarterly its best result in years.
“The market has taken their results as a sign that a turnaround is underway – both at Morrisons and elsewhere in the sector.”