On Friday, RBC (TSX:RY) Capital initiated coverage on Greggs Plc. (LON:GRG:LN) (OTC: GGGSF), a prominent UK-based bakery chain, with an Outperform rating and a price target of £32.40. The analyst at RBC Capital provided a positive outlook on the company's performance, highlighting its recovery and ability to manage rising labor costs effectively.
Greggs has demonstrated resilience with a strong like-for-like (LFL) sales exit rate as of September. The firm's strategic handling of increased labor costs has been noted as a key factor in the analyst's optimistic assessment. Despite growing cost pressures, RBC Capital anticipates that wage growth among Greggs' core customer base and an overall improvement in household finances will largely counterbalance these challenges.
The analyst forecasts a compound annual growth rate (CAGR) of approximately 11% for Greggs' organic growth from FY23 to FY26. This growth is supported by a planned seven-year rollout strategy that aims to maintain the company's robust expansion trajectory. The analyst's projection suggests that Greggs will continue to be a high-quality growth stock.
RBC Capital's price target of 3240p (or £32.40) supports the Outperform rating and is based on the expectation that Greggs will return to its historical earnings multiple. The analyst also indicates that there is potential for further cash returns to shareholders as capital expenditures decrease over time.
The positive coverage from RBC Capital comes as a strong endorsement of Greggs' business model and its prospects for continued growth and shareholder value creation. The company's strategic initiatives and financial forecasts paint a promising picture for its future performance in the market.
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