Metro AG, a German stock market underachiever, received its first buy rating in almost a year, shortly after seeing a decline in its stock price due to disappointing quarterly results. The company's shares soared as much as 7% on Monday, recovering most of their losses from the previous day, after SRH AlsterResearch analyst Alexander Zienkowicz upgraded the stock from hold. Zienkowicz's 12-month price target of €8.20 indicates a potential 17% increase from Friday's closing price.
Zienkowicz acknowledged that Metro's third-quarter numbers reflected a challenging business environment, influenced by weak consumer demand. Despite the company's sales miss, the analyst expressed optimism about Metro's efforts to streamline its portfolio, which should allow it to focus on more favorable markets.
Since its separation from consumer-electronics group Ceconomy AG in July 2017, Metro has consistently underperformed in the stock market, falling by 58% while Germany's CDAX Index rose by 21%. The company's market value has significantly shrunk from €6.7 billion to €2.7 billion during that time period.
While Zienkowicz's buy rating is a positive sign for Metro, the stock still has seven hold recommendations and four sell recommendations overall. Moreover, the average price target suggests less than 4% upside potential, according to Bloomberg data.
Bloomberg Intelligence analyst Charles Allen points out that Metro is facing immediate challenges due to higher inflation and lower consumer confidence, which are impacting its profit margins. Additionally, the previously lucrative Russian market is now making a lower contribution to the company's overall performance.
Overall, while Metro may have received a buy rating after a long period of underperformance, it still faces hurdles in the short term that could potentially weigh on its future performance.