US broker Bernstein has upped its target price for J Sainsbury plc (LON:SBRY) after updating its model for the supermarkets group following recent results which were overshadowed by the group’s proposed merger with Walmart Inc-owned (NYSE:WMT) Asda.
Retaining a ‘market perform’ rating on the FTSE 100-listed firm, Bernstein raised its target price for Sainsbury’s to 330p from 250p, with the stock currently trading at 306.6p, up 0.1% on Friday’s close.
In a note to clients, the broker’s analysts said: “Almost unnoticed 10 days ago was the fact that Sainsbury's published full-year results.”
They pointed out that the full year results came in very close to their forecasts, therefore their updated standalone model only moves future earnings per share (EPS) numbers by around -1% to +1%.
However, the analysts added, as the company indicated their comfort with consensus EPS and guided towards the tax rate, they think there will be small EPS upgrades.
Merger model updated
The Bernstein analysts said they also updated the merger model and EPS synergies now stand at 40% in 2021/22 and the merger deleverages the company from 2.6X lease adjusted net debt / EBITDAR to 2.4X.
They added: “The combination of the two, assuming the merger goes through, should warrant a 50% re-rating over time, not the 10% we have seen so far.”
The analysts concluded: “Given the potential of the merger, we don’t see derating of the multiple as likely in the coming months. We maintain our market perform rating for now, until we get more time to dive deeper into the CMA implications of the proposed merger.”