Sainsbury's shares fell 4% to 345p after the supermarket's half-year results revealed a slowdown in grocery sales growth in the second quarter that overshadowed a modest beat on profits and an upgrade to full-year guidance.
Jefferies, which has a hold rating and a 340p target price on the stock, said the results showed a softer end to first-half top-line growth, offset by margins slightly ahead of consensus and a net interest boost.
Second-quarter grocery sales grew 2.2% in total, against a consensus forecast of 2.9% and a 3.6% increase in the first quarter, with like-for-like sales excluding fuel coming in at 1.2% against expectations of 1.9%.
The broker said it did not expect consensus earnings before interest and tax to change materially on the day, as the softer grocery performance would likely offset the benefit of lower net interest costs in investors' minds.
Sainsbury's raised the lower end of its full-year underlying operating profit guidance to between £1.025 billion and £1.065 billion, with consensus sitting modestly above the midpoint of the new range.
Net interest cost guidance also moved favourably, falling from £320 million to a range of £300 million to £310 million, worth around 2% to full-year earnings per share at the midpoint, Jefferies noted.
The broker flagged that the softer second-quarter grocery performance may be continuing into the third quarter, which it said investors would weigh against the interest-driven upgrades.
Jefferies values the stock on a 2027 price-to-earnings multiple of 13.4 times and a free cash yield of 7.7%, which it said reflected the low end of the traditional grocers' valuation range.
