Morgan Stanley Names Marks & Spencer Top European Retail Pick, Sees Strong Upside

Morgan Stanley has named Marks & Spencer (M&S) its new top pick in the European retail sector, citing the retailer’s growing market share, cost restructuring efforts, and attractive valuation as key factors supporting long-term growth.

The investment bank reiterated its Overweight rating on Marks & Spencer and set a 439 pence price target, reflecting confidence that the company’s ongoing turnaround strategy will drive stronger earnings in the coming years.

Morgan Stanley expects M&S to outperform market expectations, forecasting fiscal 2028 and 2029 earnings per share (EPS) to come in 7% to 9% above consensus estimates. The bank attributes this outlook to continued improvements across the retailer’s food and clothing businesses, where it has been steadily gaining market share.

The analysts also highlighted the company’s long-term cost restructuring program, which is expected to improve operational efficiency and profitability. As a result, Morgan Stanley projects fiscal 2028 and 2029 operating profit to be 7% to 11% higher than current market consensus, supported by a leaner cost base and stronger business performance.

While the bank acknowledged that short-term challenges remain, it believes investors should focus on the retailer’s longer-term potential. Morgan Stanley noted that it could take three to six months for recovery trends to become more visible, with trading in the first half of fiscal 2027 potentially remaining subdued.

Despite these near-term risks, the investment bank believes the stock is undervalued following the impact of a recent cyber incident that weighed on investor sentiment. It expects confidence to improve as Marks & Spencer executes its medium-term strategy and delivers on financial targets.

Morgan Stanley also forecasts the retailer’s price-to-earnings (P/E) multiple to expand from around 10 times to approximately 12 times, creating additional upside for shareholders.

With shares trading at what the bank considers an attractive valuation, Morgan Stanley sees the current environment as a compelling entry point for investors seeking exposure to the European retail sector through a company undergoing a successful strategic transformation.