Deutsche Bank has cut its rating on Sainsbury's from 'buy' to 'hold' and lowered its price target to 365p from 390p, saying the supermarket offers less upside going into the peak Christmas trading period.
The new target is about 3% above the last close of 353.2p.
Analyst Benjamin Yokyong-Zoega said the bank's previous buy case rested on sustained outperformance in grocery volumes, growing margin drivers and scope for Sainsbury's valuation discount to Tesco to narrow after the Argos integration.
Following the first-half results, he said, the bank has less conviction that Sainsbury's can keep outperforming rivals on volumes.
Weaker sales also leave the grocer more reliant on margin improvements and cost savings to deliver earnings growth.
Deutsche cut its forecast for second-half like-for-like sales, which strip out new stores and closures, to 1.8% from 3.6%.
It left its estimate for full-year earnings before interest and tax (EBIT) for the year to March 2027 unchanged at £1,052m.
The analyst stressed that the business remains in good shape, with competitive pricing, healthy customer satisfaction and product availability of about 98%.
However, he said a softer volume outlook, limited near-term margin progress and a fuller valuation make the balance of risk and reward less attractive.
The shares trade on 14.2 times calendar 2026 forecast earnings, a measure known as the price/earnings ratio.
They also offer a free cash flow yield of 6.6%, which compares the cash a company generates after investment with its market value.
