Broker tips: Sainsbury, JD Sports

(Sharecast News) - ShoreCap analysts called Sainsbury's current valuation "undemanding", going on to add that its 5% dividend yield was "attractive". In a preview of the grocer's first quarter results due out during the following week, they also said they would be surprised if Sainsbury were to adjust its guidance for full-year post tax profits of £640m-£700m.

Underlying its estimates, ShoreCap said it was assuming a "broadly flat" Grocery contribution year-on-year with General Merchandise expected to account for the 'delta' due to tough comparatives.

The broker's own estimates for post tax profits of £660m, which would be down from £690m during the previous year.

ShoreCap was the house broker for Sainsbury.

Analysts at Berenberg sounded a positive note on shares of JD Sports, pointing to the retailer's fundamentals, valuation and potential share buyback to back up its call.

For starters, trading by US peers had already flagged weakness in that country, as reflected in a 15% drop in JD shares going into the announcement.

Indeed, the fact that management remained very comfortable with guidance and the consensus forecasts was proof of its "conservatism".

And the shares had been left trading on a price-to-earnings multiple of only 9.4 or 7.5 times its cash.

"This weakness looks overdone, pricing in significant downgrades that, we believe, will not materialise," they said in a research note sent to clients.

"JD is too cheap for the quality and double-digit compounding growth on offer, with a huge global growth opportunity not fairly reflected in valuation."

Their recommendation stayed at 'buy' and their target price was unchanged at 210.0p.