Broker snap: Investec upgrades M&S to 'buy' despite Christmas miss

Marks & Spencer broadly missed analysts' estimates with its third-quarter results on Thursday, but shares managed to push higher, helped by comments from Investec.Group sales at the High Street retailer rose by 1.8% in the 13 weeks to December 28th. However, while total UK sales increased by 1.5%, they were down by 0.2% on a like-for-like (LFL) basis with growth in Food once again being outweighed by weakness in General Merchandise (GM).Investec reduced its forecasts for M&S after the results, but upgraded its rating from 'hold' to 'buy', saying that the business should now become cash generative given that the current year is the last year of elevated capital expenditure (capex). "We believe the changing business model is not reflected in current valuation," said Analyst Kate Calvert, adding that there was already a lot of bad news factored into the share price."The market has already anticipated downgrades we believe, and with FY14 being the last year of elevated infrastructure capex, M&S should start to generate cash. "Management should be able to start unlocking ever increasing efficiencies as it approaches the end of its infrastructure upgrade programme. Also we believe there has been some progress on womenswear ranging and instore presentation with more to come."The broker has maintained its 500p target price, which would put the stock on a price-to-earnings ratio of 14.2 - "a 20% discount to the sector average", Calvert said.The stock was up 2.52% at 456.1p by 11:14.BC