Investing.com -- J.P. Morgan on Friday initiated coverage of UK food-to-go chain Greggs (LON:GRG) with an “overweight” rating and a 2,110p December 2027 price target, implying about 35% upside from the stock’s 1,590p close on Dec. 4, citing a valuation that has fallen to trough levels despite what it describes as sector-leading operating metrics and clear catalysts for recovery.
The brokerage said Greggs’ investment case stands on three pillars: structurally strong unit economics, a reset share price that has dropped 40% year-to-date while consensus earnings expectations fell 15%, and the potential for earnings and free cash flow to inflect from fiscal 2026 as new distribution capacity comes online.
The analysts said the shares trade at about 40% discount to the company’s 10-year historical averages on P/E, EV/EBITDA and EV/Sales, as well as at discounts to UK supermarkets and peers such as B&M, Zabka and Domino’s UK.
J.P. Morgan characterizes Greggs, a vertically integrated bakery and food-to-go retailer-as a “structural winner,” highlighting a 61.7% gross margin in 2024, roughly double peers’ 30-35% range, supported by in-house production and a focused range.
Sales densities of £769 per square foot and underlying profit of £162 per square foot place the chain ahead of competitors including discounters and convenience operators, trailing only Aldi and Sainsbury’s convenience formats on profitability per square foot. Greggs’ return on invested capital sits above 20%, which the analysts describe as sector-leading.
The broker’s base-case model forecasts company-managed like-for-like sales of 2.3% in 2025 and 2.5% in 2026, rising to 3-3.5% thereafter. Gross margins are expected at 61.2% in 2026-27 before gradually improving to 61.8%.
Underlying EBIT margin is projected to recover from 8.4% in 2025 to 8.5% in 2027 and approach 9.8% by 2030. Forecast diluted underlying EPS rises from 117.23p in 2025 to 236.68p by 2032.
Capital expenditure is guided by management at high levels through 2026 due to new distribution centers at Derby and Kettering, peaking at £300 million in 2025 and normalizing toward 6% of revenue thereafter.
Free cash flow is projected to shift from negative £64 million in 2025 to £109 million in 2027 and £205 million in 2029, reaching £228 million by 2032.
The analysts expect the two distribution centers to expand national capacity and support the company’s plan to grow from 2,618 stores to 3,000 by 2030.
They said peak capex should not be treated as a permanent step-up in capital intensity and noted management sees room for material “white space” expansion, with low cannibalization from new openings.
Greggs’ evening-trade contribution, now above 9% of company-managed sales, and growth in digital and delivery channels were also listed as incremental drivers.
J.P. Morgan’s bull-case valuation of 2,430p signals up to 53% upside, while its bear case of 1,340p indicates 16% downside, which the firm says underscores an asymmetric profile skewed toward gains.
