Investing.com -- Barclays has upgraded JD Sports Fashion plc (LON:JD) to ‘equal weight’ from ‘underweight’, citing improved capital allocation and a more balanced risk-reward profile, in a note dated Tuesday.
The brokerage lowered its price target on the stock to 80p from 110p, reflecting reduced earnings expectations and a more conservative valuation, but said many of the concerns that previously justified a bearish view have now either been addressed or are more accurately reflected in the share price.
The rating change comes despite a notable downgrade to financial forecasts. Barclays has cut its FY26 earnings per share estimate by 24%, placing it 12% below Bloomberg consensus.
It now forecasts like-for-like sales to fall 4% in FY26 and sees pre-tax profit at £833 million, around 9% lower than consensus.
The downgrade includes contributions from recent acquisitions Hibbett and Courir, implying a more substantial cut to the underlying outlook.
Barclays had previously flagged a number of stock-specific concerns, including JD’s heavy reliance on Nike (NYSE:NKE), weak free cash flow conversion, and financial oversight issues.
The brokerage now sees evidence that these issues are being addressed. Footwear sales have continued to grow despite the Nike exposure, supported by a broader brand mix including New Balance, On, and Adidas (OTC:ADDYY). Financial controls and communications have improved under the current management team.
With capital expense set to decline from about 5% of sales to between 3% and 3.5% of sales, JD has responded to investor concerns about capital discipline.
The free cash flow as a percentage of net income is expected to rise from roughly 45% in FY25 to 75% by FY27.
JD’s recent decision to delay the acquisition of the remaining 20% of Genesis until FY29/FY30 has created additional short-term financial flexibility, supporting the launch of a £100 million share buyback programme.
While there has been no formal update on long-term incentive structures, Barclays noted the company has begun to disclose return on invested capital metrics for new sites and refurbishments, something it sees as a move toward better alignment between strategy and incentives.
Tariff exposure and macroeconomic pressures remain material. JD generates about 38% of its revenue from the U.S., and while direct tariff exposure is limited, the company faces indirect impact through its dependence on third-party brands. Barclays assumes a 20% effective tariff rate on JD’s U.S. operations, which would raise the group-wide cost of goods sold by an estimated 7.5%.
To maintain gross profit, JD would need to raise prices by around 10% in the U.S., or 4% at a group level, heightening the risk of volume declines.
The brokerage stressed that pricing responses and consumer behaviour in such an environment remain difficult to model with precision.
Barclays also questioned why JD’s profit guidance for FY26 remains flat despite a significant amount of capital deployed on acquisitions and store expansion.
It pointed to the importance of demonstrating that recent investment is translating into meaningful earnings or returns, particularly as capex is scaled back.
While risks from macro conditions and tariff policy persist, and visibility on Nike’s brand recovery remains limited, Barclays said these factors are now more clearly priced into the shares.
The brokerage believes JD’s improved financial discipline and steps toward stronger operational governance support a more neutral view on the stock.