Marks and Spencer (LSE: MKS) has been a great value stock to own this year. Year to date, it has risen around 70%.
Here, I’m going to spell out why I think the stock – which is now back in the FTSE 100 index – is still worth considering for a portfolio today. Let’s dive in.
Making the right moves
Looking at Marks and Spencer today, I think there’s a lot to like about the company from an investment perspective.
For a start, the firm now has a great offering after its recent transformation.
I’ve been really impressed with the new-look M&S stores, which are attractive, well laid out, and clean, and provide a great shopping experience.
Meanwhile, I like what the company is doing on the clothing side.
I’ve always thought that M&S should stick to doing the basics well. And recently, it has been doing that.
This year, I’ve bought chinos, shorts, and sweaters from Marks and I’ve been really impressed with the quality/price ratio.
I’m clearly not the only one who has been impressed by the company’s offering. Recent financial performance suggests that a lot of shoppers have been.
For example, for the first 19 weeks of its financial year, the group reported:
- Like-for-like Food sales growth of 11% (making it the third-fastest growing UK food seller after Aldi and Lidl).
- Like-for-like Clothing & Home sales growth of 6%.
On the back of this performance, the company raised its guidance for the full financial year.
It’s worth pointing out that M&S benefits from having an older, slightly more affluent customer base. This is helping during the cost-of-living crisis, which is hurting a lot of younger consumers.
Broker upgrades
Another thing to like about the company is that brokers are becoming more and more bullish on the stock.
For example, after the company’s recent trading update, several brokers, including Credit Suisse, Barclays, and Deutsche Bank, upgraded their share price targets for the company.
“We have been supportive of the M&S turnaround and view this as more evidence that investors should look at M&S again – with a fresh pair of eyes, as the business has fundamentally changed“, wrote analysts at Deutsche Bank (who raised their price target to 260p).
More recently, analysts at Morgan Stanley upgraded the stock to ‘overweight’ from
‘equal-weight’ and raised their price target to 280p from 244p.
Their view was that the consensus earnings forecast for the company is too low.
Dividends returning
We also have dividends set to return.
For the current financial year, analysts expect a payout of 4.9p per share. That equates to a yield of around 2.3%.
Reasonable valuation
Finally, the valuation is still relatively low.
At present, the consensus earnings forecast for the year ending 1 April 2024 is 18.7p.
At the current share price, that translates to a forward-looking P/E ratio of 11.6. That’s below the UK market average.
Risks
Now, as always, there are a few risks to consider here.
One is further economic weakness. This could drive shoppers towards lower-priced retailers.
Another is debt. Including lease liabilities, net debt stood at £2.6bn at 1 April 2023.
Overall, however, I feel this value stock has a lot of appeal. I think it’s worth a closer look today.
