BofA ML reinstates JD Sports at 'buy', cites compelling valuation

Bank of America Merrill Lynch reinstated coverage of JD Sports Fashion Plc   Follow | JD. on Tuesday with a 'buy' rating and 165p price target, citing a "compelling" valuation and upside of around 70%.
"Investors seemingly have been deterred by JDS's rapid store expansion and large M&A during a sector downcycle, alongside lacklustre like for like (LFL) growth," it said.

"This likely explains the derating to circa 7x 12m forward price-to-earnings (half its LT average). Yet we argue the de-rating has gone too far. We think JDS should benefit from a sector upcycle starting in 2H25."

The bank said there is no imminent M&A risk - ex-US minorities buyout - and the group should again prove its ability to leverage its enlarged asset base.

"The stock's high correlation with the sector should support a rerating when sporting goods likely troughs out of its low relative valuation, while high short interest (6%) provides support if the backdrop improves," it said.

BofA said that with no more net cash at year-end post the Courir deal, sizeable M&A in the near term seems unlikely aside from the put liability that could be exercised by the minority shareholder in the US business.

"We estimate a cost of more than £1bn spread over the next four years and no operational risk," it said.

At 1600 GMT, the shares were up 3.4% at 101.25p.