Retailers are facing tough pressure from inflation and consumers tightening their belts – but we’ve picked two retail stocks, Tesco (GB:TSCO) and B&M European Value (GB:BME) that have been recommended by retail expert J.P. Morgan analyst Borja Olcese.
Olcese is a member of J.P. Morgan’s EMEA equity research team, where he heads the European food retail and leisure sectors.
Prior to this, he was a part of the retail team at Banco Santander.
According to TipRanks, Olcese is a five-star-rated analyst with a success rate of 69%.
He is ranked 492 out of 7,998 analysts and has an average return of 20% per transaction.
Let’s discuss these stocks in detail.
Tesco is an iconic supermarket in the UK, and is one the leading retailers in the world, supplying groceries, clothing, and other consumer goods.
What works for Tesco is its huge online operations and continuous investment in e-commerce to boost its bottom line. Analysts are betting big on the company’s growing sales despite a challenging environment and a good dividend yield of 4.5%.
Sales are recovering and surpassing the pre-COVID numbers. In its first quarter trading update for the fiscal year 2022–23, the company posted growth of almost 10% in its total retail sales, as compared to the fiscal year 2019–20. The number was 2% higher than sales from the last year.
Tesco also has the advantage of geographical diversification. Central Europe had a 9% growth in its revenues from last year. This reflects that the company is not dependent only on UK sales.
Tesco stock forecast
According to TipRanks’ rating consensus, Tesco stock has a Moderate Buy rating, based on six Buy and three Hold recommendations.
The TSCO target price is 310.38p, with an upside potential of 27.5%.
In August, Olcese has reiterated his Buy rating on the stock with a target price of 320p down from 330p.
B&M European Value Retail SA
B&M is a UK-based retailer providing a variety of goods and grocery items at competitive prices.
The company uses a low-cost model to source its products, which has proven to be advantageous in a time of rising inflation. It also follows a policy of keeping lower stocks for products, which helps in better cost control. As a result, the company’s UK margin increased to 37.4% from 36.9% in the previous year.
The company also managed to post a pre-tax profit of £525 million in its annual results for 2022.
As the company provides discounted products in its stores, it is expected to gain more traction as families tighten their belts amid an economic crisis.
BME share price forecast
According to TipRanks, BME has a Moderate Buy rating, based on five Buy, Five Hold, and one Sell recommendations.
The BME price forecast is 456.2p, which has an upside of 30% on the current price level.
Olcese is highly bullish on the stock and has a target price of 577p, which shows an upside of 61%.
Retailers are not immune to rising costs, and the stocks are currently following a bearish trend this year.
Bu these two companies are well placed to fight inflation and manage costs in an effective way. Olcese believes once the economic headwinds have passed, these stocks will gain momentum back in the long term.