(MENAFN- ProactiveInvestors - N.America) Sainsbury (LON:SBRY) has won the backing of Barclays Capital after the broker compiled an update to analysis, which pitched it head-to-head with Morrisons (LON:MRW).
Morrisons was downgraded to 'underweight' from 'equalweight' and its price target reduced 250 pence from 300 pence as a result, while Barclays keeps its 'overweight' rating for Sainsbury, though the valuation moves to 395 pence a share from 340 pence.
Barclays' concerns stem from the widely diverging sales performances of the two, which was underlined in their respective trading updates.
"The fact that Sainsbury is outpacing Morrison's sales growth is not new news, but the extent of the outperformance has recently widened to unprecedented levels," the broker said in a note to clients.
"We struggle to understand why Morrison's sales trends will improve any time soon â€" the latest promotional tool does not seem to be working and more intensive advertising from Tesco ahead of Christmas may worsen things."
It also points out the sustained growth of the discounters such as Aldi and Lidl as having a disproportionate impact on Morrisons as the pair are most active in its heartlands.
An additional "headwind" for the Bradford-based retailer revolves around its vertical integration (it owns abattoirs and bakeries), which means it is hit more quickly by food price inflation than its more conventional peers.
Barclays also points out that the company's share buyback is almost 80 per cent complete, which means "support for EPS and share price will soon end".
By contrast it sees a number of reasons to remain optimistic about the Sainsbury story. It expects the grocer to perform well in the fourth quarter when its "quality credentials" draw in Christmas shoppers.
"Despite its strong share price run, the company still offers a dividend yield which in the sector can only be bettered by Metro (if indeed Metro sustains its dividend)," Barclays told clients this morning.
"Despite a year of strong sales momentum, Sainsbury remains one of the least popular stocks on the sell-side, suggesting further re-rating potential."
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