Home Retail drops on Barclays downgrade

25th Aug 2015 14:30

(ShareCast News) - Shares in Home Retail were under pressure after Barclays downgraded the stock to 'underweight' from 'equalweight' and cut the price target to 130p from 175p.The bank's analysis showed that Home should be disproportionately hit by UK wage inflation as a large proportion of its labour force is not on living wage and the company's low-margin profile does not leave much room to manoeuvre."While Home has been historically very successful in managing costs effectively, we doubt any price increases can be made in order to alleviate the pressure due to the commoditised nature of many of Home's products," Barclays said.In addition, the product cycle was viewed as unexciting for Argos into the peak period other than large-screen branded TVs, which is a category where Argos is under-penetrated.Barclays said that combined with increased competition from consumer electronics specialists like Currys and John Lewis and pure players like Amazon and AO, risks are skewed to the downside both for the second half of next year and full-year 2017 earnings, with limited ability from the company to mitigate them in the next 12 months."We believe that some of management's initiatives could have a positive effect on earnings in the mid term, but we expect EPS momentum to remain negative in the next 12 months."At 1440 BST, Home Retail shares were down 2.7% at 145.60p