Broker tips: Wizz Air, JD Sports, Bunzl

(Sharecast News) - Analysts at Citi placed budget carrier Wizz Air on 'negative catalyst watch' on Monday, stating it now sees downside risk to the group's FY25 guidance. Citi said it had updated its estimates on Wizz Air to better reflect recent trends in traffic, fuel and pricing commentary.

In FY25, Citi now expects Wizz Air to deliver adjusted net income of €258.0m, down from a previous estimate of €345.0m and company guidance of €350.0m to €450.0m, principally due to softer pricing and higher unit costs.

Citi also lowered its capacity growth expectations for FY26 to roughly 19% based on recent guidance at Wizz's capital markets day.

"We open a negative catalyst watch as we see downside risk to the FY25 guidance and consensus expectations of €300.0m," concluded Citi as it lowered its target price on the stock from 1,300p to 1,000p.

JD Sports' share price has fallen sharply in the wake of the retailer's interim results two weeks ago, but RBC Capital Markets has reiterated its 'outperform' rating, saying that the stock's valuation still remains "undemanding".

The Canadian broker said that the recent fall in the shares - down 15% since the end of September - was more to do with concerns over the outlook for sports giant Nike and JD Sport's wholly-owned subsidiary Hibbett in the US, rather than the company's long-term fundamentals.

In a research note on Monday, RBC highlighted the potential upside for JD Sports from its recent acquisition of France-based footwear and apparel group Courir, which is expected to close by the end of the year.

"We think the main strategic advantage for JD in acquiring Courir will be to leverage its more female-focused offer. We think the acquisition of Courir could offset what so far has been a softer than expected performance by Hibbett, which generates c.70% of its sales from Nike in the south-east of the US," RBC said.

Once Courir has been integrated, JD Sports' proforma sales should comprise of 37% in the US, 34% in Europe, 25% in the UK and Republic of Ireland and 4% from the rest of the world.

With the stock trading at just 10 times 2025 estimated earnings, RBC added that its valuation "remains undemanding for a company with such a strong global footprint".

JPMorgan Cazenove upgraded Bunzl on Monday to 'overweight' from 'neutral' and lifted the price target to 3,980.0p from 3,660.0p as it increased its medium-term underlying margin assumptions to reflect greater confidence in a positive trajectory.

The bank relaunched coverage of Bunzl in March with a 'neutral' rating, even as it wrote that Bunzl was "fundamentally more attractive than it was five years ago" given structurally higher margins.

JPM said its concerns were around any unwind of inflation benefits within margins and negative-for-longer volumes.

"Bunzl's 1H24 update showcased the work that has gone 'under the hood' at the company on margins, supplemented by a clear capital allocation policy," it said. "The key new information for us has been the clear upside to the North American margin from higher own brand penetration within Grocery and Foodservice (40% of group revenue, mid single digit percent upside to group EBITA), as over the past year Bunzl has secured manufacturing lines with suppliers."

JPM noted that Bunzl is trading on a 16.5x 2025 estimated price-to-earnings, near its median P/E relative to the market, and below its median in absolute terms. It also said the stock offers a 6% free cash flow yield.

"With EPS growth possibly in the 10-15% range per annum at least over the next three years (3% organic growth, 1% from margin accretion, 2% from buybacks and mid single-digit % from M&A), we see upside to the valuation," it said.