J Sainsbury PLC’s (LON:SBRY) “superior relative earnings momentum” is nearing its peak and may leave the stock less appealing than its key competitors, according to analysts at Jefferies.
In a note on Monday, the broker downgraded the supermarket to ‘hold’ from ‘buy’ and retained their price target at 280p, saying the company’s outperformance and upgrade cycle, driven by its Argos business, “has now reached peak levels”.
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As a result, Jefferies said they expected the sector relative earnings revision momentum for Argos to “worsen” as Sainsbury’s competitors such as Tesco PLC (LON:TSCO) and WM Morrison Supermarkets PLC (LON:MRW) benefit from “a superior [positive] gearing to the reopening process”.
Looking ahead, the broker said while the set-up “remains strong for UK grocers”, investors could gain better exposure through Tesco and Morrisons than Sainsbury’s.
The broker added that the change in ownership structure at Asda remained “a self-explanatory new tailwind for the industry”, while the rate of structural share shift to German discounters has been slowing and the industry become more disciplined on online economics.
Shares in Sainsbury’s were down 0.3% at 264.7p in late morning trading, while Tesco fell 0.2% to 224.6p and Morrisons was flat at 176.8p.