Prime brokers and financial institution analysis groups put out worth forecasts for various FTSE 100 shares. These are up to date each couple of months (or when one thing main occurs that requires a revision). With some shares which might be outperforming, there are events when the analysts can’t elevate the forecast fast sufficient! Right here’s one case I’ve noticed.

Trying on the worth targets

Marks & Spencer (LSE:MKS) have lately been promoted again to the FTSE 100 because of sturdy progress. The share worth is up 57% over the previous yr, with a market cap of £5.25bn. The inventory at present trades at 257p, having been pushing greater for fairly a while.

Analysts have been attempting to maintain tempo with the good points and determining simply how excessive it may go within the coming yr. For instance, at the moment final yr, Investec had a worth goal of 180p. This was raised final summer season to 275p after which once more firstly of this yr to 316p! The present goal is 320p.

One other case is JP Morgan. The analysis crew had a goal worth of simply 150p this time final yr. But the crew have been enjoying catch up for fairly a while. Earlier this month, they raised their worth goal to a whopping 330p for the approaching yr.

After all, I must take these forecasts with a pinch of salt. If I had believed the earlier targets, I might have bought the inventory ages in the past at a lot decrease ranges! So it goes to indicate that even the professionals can underestimate how excessive a inventory can go.

Why the enterprise is doing properly

The truth that the forecasts have been eclipsed up to now yr present how properly the corporate has finished. It’s true that monetary efficiency has overwhelmed estimates, significantly throughout a interval when the UK excessive avenue basically is underperforming.

Within the newest January replace on Christmas buying and selling, group gross sales had been up 7.2% versus the prior yr. If I strip out the disappointing worldwide enterprise, UK gross sales grew by 8.5%. This progress got here from all divisions, starting from Meals to Clothes & Residence. This exhibits me that the agency isn’t counting on one half to hold the entire group. Somewhat, it’s firing on all cylcinders.

Trying ahead, I agree with a few of the high banks that 300p might be hit within the coming yr. The price-to-earnings ratio at 257p is 14.13. Though that is above common, it’s definitely not overvalued. If earnings develop for the present yr by 15%-20%, then assuming the ratio stays the identical, 300p can be the place the share worth ought to find yourself.

Monitoring the UK shopper

I do observe the chance that the UK shopper doesn’t have loads of disposable revenue proper now. If rates of interest stay excessive and we get one other quarter of unfavourable GDP progress, individuals would possibly begin to reduce on spending.

Even with that danger, it’s clear that Marks & Spencer have a rising market share. This could assist it to minimise any potential demand droop. I just like the inventory, and am fascinated with shopping for for additional good points.