Marks & Spencer earnings preview – signs of growth appear

​​​M&S share price undervalued?

​Marks & Spencer (M&S) appears to be trading at an attractive valuation, with a low price-to-earnings (P/E) ratio of just 10.8 for the fiscal year ending March 2025.

​Rising dividend yield a key attraction

​One of the key factors that could make M&S shares appealing, especially for income-oriented investors, is the company's rising dividend. For the current fiscal year, the dividend forecast stands at 6.2p, representing a yield of 2.3% at the current share price. Notably, this dividend forecast is nearly double the figure for the previous year ended 31 March. With dividends on the rise, M&S could potentially attract a new set of investors seeking passive income streams.

​Positive sentiment bolstered by upgrades

​Adding to the positive sentiment surrounding M&S shares is the recent bullish stance taken by several brokers. Last month, both JPMorgan and Jefferies upgraded the stock to the equivalent of 'buy' ratings. Such broker upgrades often serve as a positive factor for a stock's performance, as they can influence investor sentiment and attract additional demand.

​Cost pressures and competition risks

​However, it's important to note that M&S faces significant risks that could potentially derail its growth prospects. In the clothing space, the company faces intense competition not only from established retailers like H&M, Zara, and Next but also from emerging online startups that are gaining traction on social media platforms.

​Additionally, inflationary cost pressures pose a threat to the company's profit margins and, consequently, its earnings growth potential. If input costs continue to rise, M&S may find it challenging to maintain its profitability levels, thereby impacting its ability to sustain dividend growth and satisfy investor expectations.

​Technical analysis on the Marks & Spencer share price

​The Marks & Spencer share price, flat year-to-date despite trading in five month highs, remains on an upward trajectory from its 229.60 pence March low and has the January peak at 293.2p in its sights as well as the psychological 300p mark.

​Marks & Spencer Daily Chart

​Support can be found around the 268.7p April high and the 262.9p late January high.

​While the 2023-to-2024 uptrend line at 249.5p, the 200-day simple moving average (SMA) and April low at 243.1p underpin, the medium-term uptrend is deemed to be valid.

​Analysts recommendations

​According to LSEG Data & Analytics fundamental analysts are rating Marks & Spencer as a ‘buy’ with 5 strong buy, 9 buy and 3 hold - with the mean of estimates suggesting a long-term price target of 309.73 pence for the share, roughly 12% above the share’s current price (as of 16 May 2024).