Sainsbury’s higher ahead of H1 results

The supermarket giant will announce its first-half results on 12 November, and its stock has been on the rise ever since the company increased its profit forecast in September.

Sainsbury's sign and logo
Source: Bloomberg

In the latest trading update, the supermarket reported a drop in like-for-like quarterly sales, which was the seventh consecutive drop – but sales are falling at a slower rate. The British supermarkets are losing out at the hands of the German shops, Lidl and Aldi. Even though Sainsbury’s is suffering too, it is holding up better than its rivals, Tesco and Morrisons. Sainsbury’s problems are far from over, but traders welcomed the news that the company has raised its annual profit forecast.

As I mentioned previously, Sainsbury’s is cutting costs to combat falling sales, but is also cutting back on the number of price incentives it offers customers. Sainsbury’s rivals have been very aggressive in their price cuts and it is having a much worse impact on their profitability. The supermarket group is also expanding the number of convenience stores at a faster rate, and the clothing division is outperforming its food counterpart.

When Sainsbury’s reports its first-half numbers, traders are expecting revenue of £12.49 billion, which compares with the first-half revenue of £11.1 billion. The firm will post its full-year figures in May, and the market is anticipating revenue of £23.58 billion and adjusted net income of £423 million. These forecasts represent a small drop in revenue and a 16% fall in adjusted net income.

Equity analysts are moderately bullish on Sainsbury’s, and out of the 25 ratings, six are buys, ten are holds, and nine are sells. The average target price is 266p, which is 3.6% below the current price. Investment banks are very bullish on Marks & Spencer, and out of the 29 ratings, 14 are buys, ten are holds, and five are sells. The average target is £5.78, which is 5.2% above the current price.

The Sainsbury’s stock has been rising since September and the short-term target is 300p, and if it is exceeded the next level to watch will be 350p. The longer-term outlook is still bearish and a failure to break over 300p will make the support at 221p the target. 

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