Goldman Sachs has downgraded J Sainsbury to "sell" from "buy" and cut its target price to 335p from 390p, a 14% reduction, citing a deteriorating macroeconomic outlook and rising competitive pressure in the grocer's non-food business. The announcement coincided with Sainsbury's shares falling by over 2% on Monday.
The downgrade, issued by analyst Richard Edwards at Goldman Sachs, implies about 3% downside for the stock relative to the bank's assessment, while the sector average shows an upside of approximately 14%.
Sainsbury's stock had climbed 19% since Goldman added the shares to its Buy list in December 2023, outperforming the FTSE 350 Retailers index, which rose 3% over the same period. However, the gain lagged the FTSE World Europe's 31% increase as of April 2024.
Goldman Sachs signalled that the path forward looks tougher despite Sainsbury's fiscal year 2026 results, published on April 23, which delivered fiscal 2026 EBIT and free cash flow in line with expectations. Edwards said that the bank's recently revised forecast for UK household consumption growth - now 0.6% year-on-year - is a central concern. Goldman described this reading as the weakest since 2009, excluding the COVID period. In addition, April data from GfK showed UK consumers reporting rising intentions to save.
Edwards projects another year of broadly flat retail EBIT for Sainsbury's in fiscal year 2027. His model assumes continued elevated price inflation and grocery EBIT growth, but he expects these positives to be offset by weakness at Argos. Specifically, Goldman assumes a 2% decline in Argos like-for-like sales in fiscal 2027, reversing the 1% growth recorded in fiscal 2026, and anticipates an EBIT decline at Argos due to what it describes as a demanding macro outlook and increasing competitive intensity in non-food.
As a consequence of these assumptions, Goldman has lowered its fiscal year 2027 and 2028 EBIT estimates by 4% and 6%, respectively. The 14% reduction in the price target incorporates these estimate revisions as well as an updated risk-free rate assumption, which Goldman has raised to 4.2% from 4.1%.
Key points
- Goldman Sachs downgraded J Sainsbury to sell and cut its price target to 335p from 390p, a 14% reduction.
- The bank cites a weaker UK household consumption outlook and rising competitive pressure in non-food, with a revised consumption growth forecast of 0.6% year-on-year.
- Sectors impacted include retail and consumer discretionary, with particular pressure on grocery non-food operations such as Argos.
Risks and uncertainties
- Weaker-than-expected UK household consumption growth could pressure retail revenues and margins - impact concentrated in retail and consumer sectors.
- Elevated price inflation and intensifying competition in non-food may compress EBIT at Argos and similar businesses - risk to non-food retail profitability.
- Macro sensitivity of earnings forecasts, reflected in Goldman cutting fiscal 2027 and 2028 EBIT estimates by 4% and 6% respectively, adds uncertainty to near-term cash flow and valuation assumptions.
Bottom line
Goldman's reassessment trims expectations for Sainsbury's medium-term profitability and adjusts valuation inputs, prompting the move from buy to sell and a lower price target. The firm highlights subdued consumer spending growth, higher saving intentions among households, and competitive pressure in non-food as the principal drivers of its more cautious outlook.