Analysts have upgraded this FTSE 100 stock to Buy. What should investors do?
Associated British Foods (LSE:ABF) is the latest stock to be upgraded from Hold to Buy. Analysts at Panmure Liberum have a positive view on the company’s sugar business.
The share price is up around 3% as a result, leading the FTSE 100 today (14 July). I also think the stock looks interesting at the moment, but I have an entirely different reason.
Sugar
The key focus of Panmure’s attention is Associated British Foods’ sugar division. Profits in this part of the company have been volatile and the unit is expected to make a loss in 2025.
It had been speculated that the company might try to sell the business. Instead, it has attempted to fix the issues by closing, restructuring, and opening various operations.
Panmure’s analysts are impressed and have lifted their price target for the stock from £19 to £26. That’s a big difference with the share price currently at £21.09.
The sugar business is interesting, but at 13% of sales, it’s a relatively small part of the company’s overall revenues. I do, however, have a similarly positive view on the prospects for its largest division.
Primark
Discount retail business Primark accounts for around 47% of total sales. And the unit has been underperforming recently, with the latest update reporting a 2% decline in like-for-like sales.
A lot of this has been driven by the UK, where like-for-like sales were down 4%. But I think there’s a good reason for investors to be optimistic that the next report will be more encouraging.
One of the reasons the company cited was unusually warm autumn weather. This can be a real challenge for retailers, since it weighs on demand for seasonal merchandise.
More recently, however, the British weather has been much more like it. And I think this could make quite a difference for Primark and Associated British Foods.
Weather
The UK weather has been unusually warm recently. In investing circles, Greggs attributed their recent weak sales to lower demand for baked goods during a heatwave.
Associated British Foods, however, should be in a much stronger position. I expect higher temperatures to bring stronger demand for its summer ranges.
There’s always a risk that unseasonal weather in the future could present challenges. But I think there’s reason for optimism both in the short term and the long term.
I expect the market for discount fashion to grow over time and Primark has a strong competitive position in this industry. Short-term volatility is inevitable, but my long-term view is positive.
Final Foolish thought
Associated British Foods shares have been uninspiring for some time. But improvements in its sugar business as well as an easier trading environment for Primark could change that.
Even with the share price going higher, the stock trades at a price-to-earnings (P/E) ratio below 12. And the current dividend yield is a fraction below 3%, which isn’t bad.
As a result, this could well be a good time for investors to consider buying the stock. I’ve got an eye on a few other FTSE 100 stocks as well at the moment, but this one’s definitely on my list.
The post Analysts have upgraded this FTSE 100 stock to Buy. What should investors do? appeared first on The Motley Fool UK.
Like buying £1 for 31p
This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
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Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Associated British Foods Plc and Greggs Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
