Is the Marks and Spencer share price a solid defensive play in inflationary times?

If stocks were sold in supermarkets, then shares in Marks and Spencer would be in the discount aisle. Just look at the M&S [MKS.L] share price, down 38% since the start of the year, having closed Friday 13 May at 141.7p.

Yet under outgoing CEO Steve Rowe, M&S has restructured its business and has been posting some impressive sales figures. In the 26 weeks ending 2 October 2021 profit before tax was £269.4m, reversing the £17.4m loss the previous year. This is a stark contrast with the years of flagging sales and question marks over the grocer’s relevance.

“Thanks to the hard work of our colleagues, it is clear that underlying performance is improving, with our main businesses making important gains in market share and customer perception. The hard yards of driving long term change are beginning to be borne out in our performance,” Rowe said after the results were announced.

In a statement, M&S said that it expects full year profits this year to come “ahead of expectations and in the region of £500m”. Given the fall in the M&S stock, combined with a strong turnaround in the business, now could be time to pick up a bargain.

What’s happening with the M&S share price?

Shares in Marks and Spencer have declined 5% over the past month. Last week the stock climbed 5.7% to reach a high of 146.2p in Friday morning trading. As it stands, M&S is trading at similar prices to July last year, having shed all the gains made in the second half of 2022.

Is the Marks and Spencer stock a defensive play?

According to Hargreaves Lansdown, M&S is less sensitive to inflationary pressure given its wealthier clientele. This could make it a sensible, defensive pick as volatility continues to rip through the markets.

At the start of April, Barclays reiterated its ‘overweight’ rating on the stock. Analysts at the bank suggested that as that nation’s budgets are squeezed, the supermarket might see affluent customers pick it as the cheap option.

Several analysts on the lookout for good value have suggested traders add the M&S stock to their baskets. Analysts at both HSBC and Jeffries rate Marks and Spencers’ share price as a ‘buy’, with targets suggesting a moderate upside. On the more bullish end is RBC, which has a 200p price target on the stock.

Another potential tailwind is M&S’s deal with Ocado [OCDO.L], with the supermarket having a 50% stake in the online grocer. Orders are expected to grow by 100,000 every week until 2023, although the market is very competitive. Not only do M&S and Ocado have to contend with rivals like Tesco [TSCO.L] and Sainsbury’s [SBRY.L] expanding their operations, but also apps such as Getir and Deliveroo [ROO.L] that deliver groceries in minutes.

Where next?

Of course, these are uncertain times. The prospect of the UK economy entering recession and higher household bills could still mean M&S’s wealthy customers switch to cheaper rivals. This outlook may have contributed to Deutsche Bank analysts’ decision to downgrade their rating on the stock from ‘buy’ to ‘hold’ in April.

Not only did the analysts at Deutsche Bank trim their price target to 185p from 255p, but they also predicted M&S’s profits would decline in 2023 due to inflationary pressures.

“Consumer confidence is falling rapidly and real wage growth has returned to negative territory, with heightened inflation likely to drive further pressure,” analysts from the bank wrote in an investor note.

Still, the consensus seems to be further upside in M&S shares. The 19 analysts offering 12-month price targets for M&S have a median target of 213p, suggesting a 50.3% upside on Friday’s close, as reported by the Financial Times. M&S has five ‘buy’, four ‘outperform’, 13 ‘hold’ and two ‘underperform’ ratings from analysts.

For those interested in the stock, the next key date is 25 May when M&S is scheduled to announce full year results.