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Over the last 12 months, J Sainsbury’s (LSE:SBRY) share price has seemingly gone nowhere. The retail giant has seen its market-cap stagnate as fears of a new supermarket pricing war emerged earlier this year. But with so many investors being fearful, could a lucrative buying opportunity have emerged?
Here are the latest projections coming from City analysts.
The return of an adversary
Allan Leighton first held the leadership role of CEO for Asda all the way back in 1996. At the time, the retailer was struggling. But over the years, Leighton was able to get the ship back on track, resulting in a lucrative takeover offer from Walmart in 1999 for £6.7bn. He continued to steer the ship until 2001 before stepping down to take up leadership positions in other businesses.
Skip ahead almost 25 years, and Leighton’s back at the helm, once again attempting to get Asda back on course. His new strategy was announced last month and it understandably sparked a lot of fear among shareholders of other supermarket giants like Tesco, Marks and Spencer and, of course, Sainsbury’s.
In short, he’s aiming to get Asda “firing on all cylinders again” through price cuts on thousands of products, potentially placing enormous pressure on its rivals’ already tight profit margins. If successful, the group’s market share could finally start heading back in the right direction towards the 15% it once stood at five years ago, versus the current 12.5%.
Are investors overreacting?
While the threat of Leighton’s leadership at Asda can’t be ignored, the pressure on Sainsbury’s may not be as severe as many might expect. Asda’s price-cutting strategy is expected to be expensive in the short term and could actually backfire if it doesn’t deliver the expected results. Even if shoppers start migrating, the Sainsbury’s loyalty scheme is a powerful lever management can pull to bring them back – an advantage that Asda doesn’t have.
As such, analyst forecasts for 2025 haven’t actually changed all that much. Revenue’s still expected to climb modestly, by 2% to £33.3bn, with earnings following at a slightly higher 3.3% pace. And with the recent sell-off dragging the forward price-to-earnings ratio to just 11.2, the Sainsbury’s share price is now trading at a significant discount to its industry average of 17.8.
With that in mind, it’s not so surprising that the average analyst’s 12-month share price target for Sainsbury’s is 300p. Compared to where the stock’s trading today, that presents an estimated 22% potential capital gain on top of the 5.4% dividend yield currently being paid out.
In other words, a £1,000 investment today could transform into £1,274 by next April. Of course, forecasts aren’t set in stone, and Asda isn’t the only competitor Sainsbury’s needs to be worried about. Tesco’s latest moves have seen its market share expand, making it a prominent threat that might disrupt the group’s performance in 2025.
Nevertheless, with the shares being aggressively sold off on potentially unjustified fears, a buying opportunity may have emerged. Therefore, investors may want to consider digging deeper to see if the risk justifies the potential reward.
