JD Wetherspoon has just been branded as one of broker Liberum’s least favoured stocks.
Whether the broker’s gloom is accurate will be more visible next week with the pub owner set to release interims on Wednesday.
Liberum expects Spoons to reveal ‘weak post-Covid sales momentum, high labour intensity and narrow margins’, which makes it vulnerable to the double pinch of inflation.
In addition, trading continues to lag peers as its older, more cautious customer base stays away and whose price sensitivity is likely to be tested.
“Furthermore, the estate size is shrinking, and the balance sheet leverage is one of the highest in the sector. Under these conditions, earnings risk is high, and the shares no longer deserve a premium rating.”
A hold is its view, but the target price reduces to 600p from 900p previously.
Also getting the red pen is Royal Mail, where industrial action, cost headwinds and a likely recession are the immediate issues, says the broker.
“The lack of sustained parcels growth and the absence of consistent productivity improvements mean UK margins are once again being squeezed.
“GLS remains well-positioned, but growth there is stumbling in the face of tough comparatives and cost inflation. “
Sell with a 205p target price is the view.
Liberum, though, does make some bold calls not least having easyJet among its most favoured.
It’s hard to believe many of the airline's customers think too favourably of the airline at present after the rush of cancellations often at very short notice.
Liberum though believes this ‘operational disruption’ is tarnishing what should be a bumper summer season with volumes near pre-pandemic levels and unit revenues ahead of 2019.
“Beyond the short-term challenges, easyJet remains well-positioned with aircraft reallocated to more profitable bases and unit costs improved with seasonal crew contracts.
“A 10-year low for the share price is a buying opportunity for those able to look beyond the short-term challenges.”
Buy with a 500p target.
Whitbread is another in favour with the broker.
“Premier Inn UK continues to outperform the sector by some margin with impressive LFL sales momentum augmented by new openings and extensions.
“This performance is being driven by both strong occupancy and room rate across the Regions and now also London.
"F&B and Germany have also recovered more rapidly than expected.”
This should lead to further upgrades, higher dividends and or buybacks in the broker's view.
Buy with a 3,320p target implying around 32% upside from today’s 2,506p.