The Marks and Spencer (LSE:MKS) share price has started 2026 positively after the retailer reported strong trading over the Christmas period. However, it still trades far below its highs of 2025.
So, why is that?
Well, many of you will remember that the company was hit by a cyberattack in April, and from that moment onwards, earnings expectations for the year collapsed.
Until that point, analysts had expected the company to deliver around 31p in earnings per share (EPS) for FY26. However, the consensus forecast slipped and slipped as the operational constraints dragged onwards.
The consensus now is for 23.2p per share in FY26. But the financial year is coming to an end and it’s time to look forward to FY27.
Earnings to recover
EPS is forecast to come in at 34.1p in FY27. That’s a significant change on FY26 but it all relates to the cyberattack providing a lower base. With this figure in mind, the stock is trading around 10.1 times forward earnings.
That puts it at a significant discount to peers in the grocery sector. It’s worth noting that it’s more diversified than most of its peers with around 30% of sales coming from fashion, home and beauty — this would typically make it deserving of a premium not a discount.
The company does sit on a fair amount of net debt — £2.5bn of it. However, the size of this debt relative to the company’s market cap is actually quite small compared to its peers. So, it’s that relative valuation idea again, and Marks is coming out on top.
The dividend is small, but that’s not an issue unless we’re only investing for the near-term dividends. In my position, I’d rather see my investments rise by 25% annually instead of receiving 5% in yields.
Analysts are bullish
There are currently 16 brokers covering Marks and Spencer — 12 Buys or Strong Buys, and just three Holds. There are no Sell ratings.
This is a very good start.
Now the average share price target is 427.8p. That’s 25% above the share price at the time of writing. And while institutional analysts are a mixed bunch the consensus of 16 analysts is normally a good indicator of a undervalued position.
The bottom line
Predictions can be wrong though.
Marks and Spencer is still seen as a premium brand and it’s worth considering what impact there would be if the UK economy faced another recession or cost-of-living crisis. While there’s certainly a defensive element to food and clothing, customers would be more likely to trade down in such an economy.
However, having traded down last weekend from M&S to Aldi — purely because we were driving past — I can pledge myself as a long-term customer of the former. Aldi was cheaper on face value, but I thought it was utter rubbish and at least 15% of our basket was inedible.
Anyway, there are always ifs, buts, and maybes. But I believe this stock is worth considering seriously.
