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Marks & Spencer (full-year earnings 24 May)
Being optimistic on Marks & Spencer has the whiff of a contrarian trade about it: of 27 broker ratings, 12 are currently sells. But perhaps, it is time to be more optimistic. The firm has pulled off two major coups in staffing terms, hiring retail legend Archie Norman as its new chairman and Halfords CEO, Jill McDonald, who is going to have a go at running the clothing business, long a major problem for the firm. Food continues to do well, and remains the major engine of revenue growth. And, if McDonald can put in a good performance in clothing, it will provide significant tailwinds for performance. Archie Norman’s magic may take more time to work on such a big canvas, but the appeal of retail’s ‘turnaround king’ will be hard to resist for many investors. Earnings are expected to be down 17% year on year (YoY) at 29p per share, while revenue is forecast to rise 0.3% to £10.59 billion. The forward price/earnings (PE) is 13.2 times.
The shares have finally broken above a trendline that goes back to the May 2015 high, and which was last tested in November 2015. The next upside targets to watch are 391p, 408p and then 448p, the 2016 second quarter (Q2) high. A drop back below 380p risks move back to 360p in the short term.