Marks and Spencer’s (LSE: MKS) share price revival is now not a hopeful storyline however a palpable actuality. However I believe it’ll go rather a lot greater, as its price converges with its ‘truthful worth’ over time.
Each Meals and Clothes are delivering constant progress, margins are enhancing, and the enterprise looks structurally stronger than it has in years.
Positively as properly, the sharper give attention to worth, high quality, and operatinal effectivity makes this turnaround look sturdy quite than cyclical.
So how excessive do I believe the shares will go?
Picture supply: Getty Pictures
Earnings progress momentum
Earnings progress powers any firm’s share price (and dividends) over the long run.
A danger to Marks and Spencer is any lingering weak point in its cybersecurity programs following the assault introduced on 22 April final yr. Because of this, administration estimated round £300m can be knocked off its fiscal yr 2025/26 working revenue.
Regardless of this, the underlying engines of the enterprise are shifting within the right course, in my opinion. Its H1 2025 outcomes noticed the Meals division proceed to outperform the broader market.
Gross sales jumped 7.8% yr on yr, marking three years of consecutive month-to-month quantity progress.
This alerts to me that Marks is successful buyers on high quality, worth and innovation quite than simply pricing.
In Clothes & Residence, the restoration is slower however unmistakably underway. Availability rebounded rapidly, as did on-line visitors, and the brand new ranges are in style, helped by stronger fashion credentials and higher inventory stream.
Added to this are the continued retailer‑renewal programme, the £340m funding in a modernised Meals provide chain, and a multi-year push to automate logistics and scale back price‑to‑serve. Taken collectively, these initiatives make the medium-term earnings image look meaningfully stronger than the headline H1 numbers recommend.
Actually, consensus analysts’ estimates are that Marks’ earnings will rise by a whopping common of 34% a yr to end-2028. It is a exceptional trajectory for a enterprise as soon as written off as ex-growth.
What’s the true price of the inventory?
I ran a reduced money stream (DCF) evaluation to verify the true price of the shares. This initiatives future money flows from the underlying enterprise and reductions them again to as we speak. It additionally displays consensus analysts’ earnings progress forecasts for the corporate.
The DCF mannequin is my most popular valuation methodology, because it produces a clear, standalone consequence, unaffected by over- or undervaluations throughout a enterprise sector.
Some analysts’ DCF modelling is extra bearish than mine, and some extra bullish, relying on the inputs used. Nonetheless, primarily based on my DCF assumptions — together with an 8% low cost fee — Marks’ shares are 54% undervalued at their present £4.04 price.
Subsequently, its truthful worth might secretly be shut to £8.78 a share — greater than double the place the inventory trades now.
This hole is extraordinarily necessary for long-term investor earnings, as asset costs have a tendency to commerce to their truthful worth over time. So this implies a doubtlessly very good shopping for alternative to take into account as we speak if these forecasts show correct.
My funding view
The mixture of rising earnings energy, stronger buying and selling and a nonetheless‑modest valuation makes Marks and Spencer particularly enticing to me. So I’ll preserve my holding within the inventory.
And I strongly imagine the shares will proceed converging towards their long-term truthful worth. Consequently, I believe the shares worthy of different buyers’ consideration.
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