Broker tips: Man Group, EasyJet, M&S

(ShareCast News) - Man Group shares rose on Friday as RBC Capital Markets upgraded the stock to 'outperform' from 'sector perform' and reiterated a target price of 140p."We are confident Man's balance sheet should provide the firepower for a positive catalyst (either a merger and acquisition or extraordinary returns) this year," RBC analysts said in a note to investors."While investors may need to be patient for one to emerge, it is our opinion that those who take advantage of the current valuation discount to peers will be rewarded."RBC said it believes Man Group is retaining surplus capital to fund potential acquisitions. The broker estimates the company has around $500m of surplus capital to deploy."In our view there is a small possibility that Man announces a share buyback programme concurrent with first half results on 26 July, but it is more likely that Man continues its search for acquisitions."Therefore, while investors may need to show patience, we believe that those that do will be rewarded, either with a higher yield or a rerating driven by M&A-led earnings growth."Man Group's shares are down 30% in the year to date and the company has underperformed the asset managers sector which is on average down by 11%.RBC believes the share price performance reflects a lack of positive catalysts so far this year, a poor run for is its alternative investment management business AHL, and upcoming first half results which are expected to be lacklustre.RBC cut its earnings per share forecast by 10%, 8% and 4% in 2016, 2017 and 2018, respectively, largely because of reflecting higher variable compensation from performance fees. Investec downgraded EasyJet to 'hold' from 'buy' as it cut the price target to 1,100p from 2,050p to reflect the revised outlook following the airline's third-quarter update on Thursday.The brokerage said Q3 trading was broadly in line with post-Brexit expectations. However, the fourth-quarter yield outlook is highly uncertain, with yields achieved for Q4 post-Brexit down around.12%, compared to those before Brexit down around 5%.Investec noted that capacity plans for the second half have also been reduced from +6.5% to +6.1%, while cost savings are expected to pick up materially in the fourth quarter, from a 0.4% increase per seat year-to-date to a 1% drop for the full year, suggesting savings of around 4.4%.The brokerage said it has downgraded its full-year 2016-18 earnings forecasts by 20-30%.On Thursday, the low-cost airline posted a drop in revenue per seat and total revenue for the third quarter amid difficult trading that was hit by the terror attack in Brussels and the Egyptair tragedy.For the quarter ended 30 June, total revenue per seat was down 8.3% at constant currency or 7.7% on reported basis to £54.54, while total revenue fell by 2.6% to £1.196bn as increased seat capacity was offset by the impact on yield of overall market capacity and cancellations as a result of external events. Marks & Spencer was under pressure on Friday after Barclays downgraded the stock to 'underweight' from 'equalweight' and slashed the price target to 290p from 410p saying things were likely to get worse before they get better under the new turnaround plan."We expect a painful transition and material earnings per share downgrades. We view the price cuts in clothing lines as an essential but mostly corrective action that could keep General Merchandise LFLs deep in negative territory in FY17 and FY18."The bank said it expects the strong appreciation of the US dollar and higher cotton prices to have a 130 basis points negative impact on FY18 gross margin, adding to the pressure, while investment in service does not leave much room for cost cutting.Barclays said it does not see material downside risk to M&S's multiple but has cut its full-year 2018 EPS estimate by 20% and is now 17% belowReuters consensus."November's strategy update may include positive news on the simplification of the clothing sub-brands, the rationalisation of M&S's international business and better use of the company's store estate. While we expect this to be positive in the longer term, it is unlikely to have a positive impact on earnings over the next two years."The bank said current low visibility on EPS was unappealing and with no signs of stabilisation in consumer confidence, a re-rating is unlikely.