Jefferies Cautious on UK Retail Stocks; AB Foods and Next Shares Downgraded

Jefferies has struck a more cautious tone on UK retail stocks, warning of a growing disconnect between buoyant equity markets and fragile consumer confidence, as it downgraded three high-profile names while making selective adjustments elsewhere.

In a sector-wide update, the broker downgraded Associated British Foods to Underperform from Hold, cutting its price target to 1,800p from 2,000p. 

Jefferies said challenges at Primark are likely to persist, weighing on the investment case despite the group’s diversified earnings base.

Next was also downgraded, with Jefferies moving the stock to Hold from Buy. While the broker lifted its price target to 14,000p from 13,000p, it said the shares have already enjoyed a significant re-rating this year, leaving less upside in what it described as a muted UK retail spending environment.

Tesco was similarly downgraded to Hold from Buy, reflecting the same cautious stance on the broader consumer backdrop.

By contrast, Jefferies reiterated that Marks & Spencer remains its preferred Buy in the sector, despite lowering its price target to 400p from 440p. 

The broker said it continues to see M&S as best positioned within UK retail, even as it tempers expectations across the group.

Jefferies also raised its price target on Sainsbury to 330p from 300p, maintaining a Hold rating. 

Overall, Jefferies said it is becoming more selective on UK retail, arguing that valuations in parts of the sector no longer fully reflect the challenges facing consumers.