Is Sainsbury’s stock a good buy ahead of earnings?
Sainsbury’s (LON: SBRY) share price has made a strong recovery in the past few weeks. The shares rose to a high of 196p, which was about 16.85% from the lowest level in October. Other UK retail stocks like Tesco and Marks and Spencer have also tilted upwards recently.
Sainsbury’s earnings ahead
Sainsbury’s is a leading British retailer with over 600 supermarkets and 800 convenience stores. The firm sells goods worth over 29 billion pounds and over 677 million pounds.
Sainsbury’s, like other top UK retailers, has been in a rough patch in 2022 as concerns about inflation continued. The situation worsened as concerns about UK’s economy escalated following Kwasi Kwarteng’s tax cuts.
Sainsbury’s share price will be in the spotlight this week as the company publishes its first-half financial results. Analysts expect that the company’s profits declined sharply in the first half as inflation rose.
Analysts at Shore Capital believe that Sainsbury’s pre-tax profits dropped by 11% to £318 million in the period. Broadly, analysts expect that its pre-tax earnings for the year will come in at £637 million. Other retailers, including Tesco, have slashed their forward guidance recently.
Recent data point to more weakness for UK’s retail sector. For example, data published this month showed that inflation rose to 10% in September, the highest point in more than three decades. The situation will likely worsen after the UK scales back energy support. Consumer confidence has dropped to a record low.
Still, the weaker British pound has some benefits for Sainsbury’s. For one, it has made its stock substantially cheaper in dollar terms. As such, there is a likelihood that the company could become an acquisition target by American companies.
In 2021, following Morrison’s acquisition, there were rumours that private equity companies like Apollo Global were interested in the company.
Sainsbury’s share price forecast
The daily chart shows that the SBRY share price has been in a strong bullish trend in the past few days. In this period, it has managed to cross the important 25-day and 50-day moving averages. The two averages have made a bullish crossover. It is approaching the important resistance level at 200p, which was the lowest level on June 30th. The Relative Strength Index (RSI) has continued rising.
Therefore, there is a likelihood that Sainsbury’s share price will keep rising ahead of earnings and then retreat after the results. It is forming a break and retest pattern.
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