Marks & Spencer (LSE: MKS) is returning to the FTSE 100. Could that mark a new bull run for M&S shares?
Investors have been waiting for a turnaround from the high street giant for what feels like decades. But we didn’t get one, and the stock dropped into the FTSE 250 four years ago.
But now, with profits set to rise in both the company’s main divisions, it’s back. Well, it’ll be in the FTSE 100 again in 18 September, when the latest reshuffle takes effect.
Share price recovery
M&S shares have put in a strong recovery, gaining a huge 85% in the past 12 months. And that’s taken the market cap to nearly £4.5bn, which puts it firmly back in the top London index.
We’re still looking at a 20% fall in the past five years, though. So I’d say there’s a good chance that it’s not too late to get in.
We could still see further boosts in the years ahead, I think. And current forecasts would seem to support that.
The consensus puts the stock on a 2023-24 price-to-earnings (P/E) ratio of 13. But with earnings growth on the cards, that could drop to under 10 by 2025-26.
And, the City expects dividends to be back, and to grow to a 3.5% dividend yield in the same timescale.
Trading update
H1 results aren’t due until 8 November. But, going by August’s trading update, they should be ahead of prior expectations.
The company says like-for-like Food sales grew by 11% in the first 19 weeks of the year. Food has never been a problem for Marks, but that’s still good.
Clothing sales had been an issue for it for years. Marks just didn’t seem to be able to offer the things that shoppers wanted. And it was consistently beaten on the high street by the likes of Next and others.
But in the latest period, like-for-like Clothing & Home sales rose by 6%.
Back yet?
I think we need to be a bit cautious still. I don’t know how much of this is due to general high street recovery, and how much is down to M&S itself. But it’s still a good result.
And the full-year outlook looks brighter now.
The update spoke of economic uncertainties. But the firm added that “we now expect the outcome for the year to show profit growth on 2022-23, and the interim results to show a significant improvement against previous expectations.“
Risk ahead
M&S did warn us that “there is a risk that the consumer market will tighten as the year progresses.”
And that’s something that anyone investing in high street retail in 2023 needs to take on board.
There are also questions over whether this is the start of a long-term trend. Or might it just be a one-off post-crash thing?
It might take a couple more years to be sure if M&S is really back for good, and if that long-awaited earnings growth is solidly back on track. But to me, it looks good so far.
