Shares in Greggs (LSE:GRG) surged more than 5% after J.P. Morgan initiated coverage of the UK food-to-go chain with an “overweight” rating and a December 2027 price target of 2,110p. The target implies roughly 35% upside from the stock’s 1,590p closing level on Dec. 4. The bank pointed to a valuation sitting at cyclical lows despite what it calls best-in-class operating performance and multiple catalysts for recovery.

According to the note, J.P. Morgan’s investment thesis rests on three core themes: the company’s structurally strong unit economics; a reset valuation following a 40% year-to-date share price decline versus a 15% cut to consensus earnings; and the potential for both earnings and free cash flow to turn sharply higher from fiscal 2026 as fresh distribution capacity ramps up.

The analysts highlighted that Greggs is currently trading at around a 40% discount to its 10-year average multiples across P/E, EV/EBITDA, and EV/Sales, while also sitting below valuation levels seen at UK supermarkets and peers such as B&M, Zabka, and Domino’s UK.

J.P. Morgan describes Greggs — a vertically integrated bakery and food-to-go operator — as a “structural winner,” emphasizing its 61.7% gross margin in 2024, nearly double the 30–35% range reported by comparable retailers. The team credits the company’s margin strength to its in-house production model and streamlined product assortment.

The broker also cited standout productivity metrics: sales densities of £769 per square foot and underlying profit of £162 per square foot, placing Greggs ahead of most discounters and convenience operators and trailing only Aldi and Sainsbury’s convenience formats on profitability per square foot. Return on invested capital is above 20%, which the analysts view as among the strongest in the sector.

J.P. Morgan’s base-case outlook assumes company-managed like-for-like sales growth of 2.3% in 2025 and 2.5% in 2026, rising toward 3–3.5% in subsequent years. Gross margins are forecast at 61.2% for 2026–27, with gradual improvement to 61.8%. Underlying EBIT margins are expected to climb from 8.4% in 2025 to 8.5% in 2027, approaching 9.8% by 2030. Diluted underlying EPS is projected to grow from 117.23p in 2025 to 236.68p in 2032.

Management guidance suggests elevated capital expenditure through 2026 as new distribution hubs in Derby and Kettering are built out, with a peak of £300 million in 2025 before capex trends back toward roughly 6% of revenue. Free cash flow, which is anticipated to be negative £64 million in 2025, is projected to rebound to £109 million in 2027, £205 million in 2029, and £228 million by 2032.

The analysts expect the new distribution centres to enhance national capacity and underpin Greggs’ plan to increase its store base from 2,618 to 3,000 by 2030. They also argued that peak investment should not be mistaken for a long-term rise in capital intensity and noted management’s confidence in substantial remaining “white space” with minimal cannibalisation risk.

Additional growth drivers flagged by J.P. Morgan include the company’s expanding evening-trade contribution—which now exceeds 9% of company-managed sales—as well as continued momentum in digital ordering and delivery channels.

J.P. Morgan’s scenario analysis assigns a bull-case valuation of 2,430p, implying up to 53% upside, while its bear-case target of 1,340p suggests 16% potential downside. The firm said this range reflects an asymmetric risk-reward profile tilted in favour of further gains.

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