Broker tips: J Sainsbury, Royal Mail, Weir Group

11th Jun 2015 10:56

Cantor Fitzgerald upgraded J Sainsbury to 'buy' from 'hold' and lifted the target price to 312p from 275p, saying it believes the industry is near the bottom of its current deflation and margin cycle and the stock is supported by a dividend yield of 4.4%.It noted that sales volumes are improving this year, partly due to price investment but also growth in real consumer discretionary spend."Sainsbury's continues to gain UK market share helped by a store portfolio that is 60%+ exposed to wealthier consumers in London and the South, as well as faster growing convenience and non-food sales," said Cantor."Sainsbury could achieve higher sales volumes this year due to its improved product mix and the benefit of higher household earnings. We expect trading margins to start gradually rising next year."Cantor maintains its top-of-the-range underlying pre-tax profit estimate of £605m, versus consens of £548m and says its full-year 2016 forecast is based on group retail operating profit of £645m and bank pro JPMorgan Cazenove upgraded Royal Mail to 'overweight' from 'neutral' and raised the target price to 605p from 515p, pointing to diminished postal risk after PostNL announced the suspension of Whistl's UK direct delivery operations."While uncertainty persists with respect to parcel market headwinds (overcapacity) and postal market uncertainty (competition, regulation), the withdrawal of PNL from the direct delivery market leaves us with a more compelling Royal Mail valuation," said JPM, noting 17% upside potential.The broker said the move reduces its competition discount while lifting underlying earnings per share by 4%.It also pointed out that the government now holds a 15% stake in the company, down from 30%. "Besides lifting liquidity, we believe a complete sell-down might simplify upcoming labour/pension negotiations," said JPM. Shares in Weir Group were extending losses on Thursday morning as analysts reacted to a cautious trading update from the engineering outfit the previous day, with recent weakness in the US oil and gas market worse than expected.Broker Beaufort Securities lowered its recommendation on the stock to 'hold', while Jefferies stayed at 'hold' and JPMorgan Cazenove maintained an 'underweight' stance.Meanwhile, Numis Securities reiterated its 'hold' rating and reduced its profit forecasts, saying that the stock's valuation is up with events."The oil and gas weakness in North America is having a deeper and more protracted impact than previously anticipated, hence the reduction in expectations of 5%," said Numis analyst David Larkam. He now predicts a pre-tax profit of £270m this year, down from his initial estimate of £285m."When recovery comes the shares will no doubt start to look attractive again," Larkam said.However, he said that the current rating and lack of clarity as to the length of the downturn means the stock is "high enough for now".