Morgan Stanley Names Marks and Spencer New Top European Retail Pick

Morgan Stanley has named Marks and Spencer its new top pick in the European retail sector, upgrading the stock to Overweight. The investment bank highlighted the retailer's consistent market share gains and strategic cost initiatives as key factors supporting a positive long-term outlook.

Analyst Upgrade

In a new research note, Morgan Stanley assigned a 439 pence price target to Marks and Spencer's stock. Analysts cited the company's strengthening position across both its food and clothing segments as a fundamental driver for the upgraded status.

The bank also pointed to strategic initiatives aimed at reshaping the company's long-term cost base. These efforts are expected to significantly improve operational profitability, according to the firm's analysis.

Bullish Financial Outlook

Morgan Stanley's financial models project a more optimistic future for M&S than the current market consensus. The bank's forecasts for the retailer are notably above street expectations for fiscal years 2028 and 2029.

Key projections from the firm include:

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• Earnings per share (EPS) running 7% to 9% ahead of consensus estimates.
• Operating profit is projected to be 7% to 11% higher than consensus.

These projections are underpinned by the successful execution of the company's turnaround plan and an anticipated rebound in sales performance.

Valuation and Near-Term Risks

Morgan Stanley believes the stock's valuation is currently "depressed" following the aftermath of a cyber incident, creating what it views as an attractive entry point for investors. The bank anticipates a "re-rating" of the stock, projecting its price-to-earnings (P/E) ratio could expand to 12 times from its current level of approximately 10 times as M&S delivers on its medium-term goals.

However, the analysts acknowledged potential near-term headwinds. They noted that clear recovery data may take three to six months to materialize and flagged the risk of a slow trading start to the first half of fiscal year 2027.