Analysts bullish on WHSmith share price ahead of earnings

WHSmith [SMWH.L] has turned around its fortunes through its growing number of stores in major airports. The change has been transformative, with its airport stores now exceeding money made on the high street. In the six months to February 2022, travel revenue accounted for £338m, up 125% compared to the same period in 2021. High street revenue came in at £270m, unchanged from the same period the previous year.

Analysts have taken note with several setting lofty targets for WHSmith’s share price. But as the macroeconomic headwinds continue to gather, can this transformation continue to deliver? This week’s full-year results should provide some insight.

What’s happening with WHSmith’s share price?

WHSmith’s share price has dropped just over 6% this year, closing on 26 August at 1,390p. Over the past three months, WHSmith’s stock has dropped nearly 14% as concerns over the UK economy come home to bite – namely the increased cost-of-living driven by rising energy prices.

With consumers expected to have less disposable income, business could slow for the retailer, especially in its booming travel business as paying the electricity bill will surely prioritised over a foreign holiday and a dash to duty free.

What to look out for in upcoming results

WHSmith might be best known as a high street mainstay, but it is the company’s stores in airports and other transportation hubs, such as railway stations, that is driving strong results. In the 15 weeks to 11 June these stores delivered a 123% increase in sales compared to the same period in 2019. In the UK travel business sales increased by 104%, while in North America sales were up 111%. 

To capitalise WHSmith is targeting 15-20 new stores on average per year in UK airports, hospitals and railway stations. Under its InMotion brand it has won the right to open 30 more technology stores in UK airports. 

Outside the UK, WHSmith has also grown its presence in international airports, particularly in North America through the acquisition of InMotion and Marshall Retail Group. WHSmith said that it sees significant opportunity in the US travel market and will open 58 new stores in North America over the next three years. 

'Travel continues to perform strongly across all three divisions, and we expect this to be maintained into the peak summer trading period. As a result, we now anticipate the full year outturn to be at the higher end of analysts’ expectations,' as stated by WHSmith in June.

Looking at WHSmith’s high street business, it’ll be interesting to see how it is getting on with its cost reduction strategy. The retailer is targeting savings of £41m which it is aiming to deliver through rent reductions and reviewing leases as they come up for renewal. WHSmith noted that high street footfall was down 20% compared to 2019 levels in half year results, but business was supported by a growing internet channel – something to keep tabs on during the earnings update.

WHSmith has noted that the economic outlook remains uncertain, and investors will pour over the upcoming results to see how things are holding up.

Analysts back WHSmith stock

Analysts have shown plenty of love for WHSmith’s share price recently. In mid-August analysts at the Royal Bank of Canada restated their ‘outperform’ rating on WHSmith’s stock and pinned a 2,100p price target on the share price to boot. That comes hot on the heels of Berenberg Bank issuing a ‘buy’ rating on and a 1,900p price target. JP Morgan, Deutsche Bank and Barclays are also positive on WHSmith’s stock with price targets well above Friday’s close.

Of the 11 analysts polled by the Financial Times, the median price target on WSmith’s stock is 1,900p. Hitting this would see a 36% upside on Friday’s close. Trading conditions could well get tougher, but the question is whether this is truly priced into the optimistic outlook for WHSmith’s share price.