Broker tips: J Sainsbury, WH Smith, Cairn Energy
JP Morgan has lowered its target price on J Sainsbury by 20p to 350p, describing the supermarket operator's guidance for the year ahead in yesterday's full year results as 'downbeat'.
While the 2007/08 results were fully in line with expectations, the broker said, the gloomy outlook for this year prompted it to lower earnings per share estimates.
"Rising operating costs and flagging leverage from sales are important drivers of the downgrade," JPM said.
"These factors are not quantified, but energy costs look set to rise around 10% this year and the lack of sales leverage should be plain when the company only hopes for 3% to 4% like-for-like growth when helped by extensions of stores and high food inflation."
JPM keeps its 'underweight' rating on J Sainsbury. Elsewhere, Deutsche Bank downgraded the supermarket to 'sell' from 'hold' and cut its target price by 25p to 335p, also citing forecasts for the year ahead.
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Customer growth has stalled and like-for-like sales growth has reverted to normal levels, Deutsche Bank noted, meaning that higher costs will be more difficult to absorb.
Citigroup has lowered its recommendation on WH Smith to 'hold' from 'buy' in light of the newsagent chain's strong recent performance.
It also noted that there is little news in the pipeline that might trigger a rise in WH Smith's share price. It maintains its 420p price target on the company.
UBS has raised its stance on the oil and gas company Cairn Energy to 'buy' from 'neutral' and lifted its target price to 4,500p from 3,250p after raising its oil price forecasts. UBS said Cairn is one of its top picks in the oil sector.
