U.K. Grocers Lead FTSE 100 Gainers as Upgrades Provide Relief

U.K. grocers rose the most in the benchmark FTSE 100 Index Tuesday as recommendation upgrades by two brokerages brought some relief to the struggling stocks.

Tesco Plc gained as much as 4 percent to 163.2 pence after closing at the lowest level in more than 15 years Monday. J Sainsbury Plc surged as much as 4.7 percent to 253.1 pence and Wm Morrison Supermarkets Plc rose as much as 2.8 percent to 149.8 pence ahead of the stock’s demotion from the FTSE 100.

Recent declines in the share prices of U.K. supermarkets have been excessive, according to some analysts. Even after consistently outperforming peers operationally, Sainsbury is the cheapest of the listed grocers, James Collins, an analyst at Stifel, said in a note Tuesday. He upgraded the stock to buy.

Morrison’s management is “doing the right things,” although the grocer’s lack of scale, combined with competition from Wal-Mart Stores Inc.’s Asda and the discounters means the company remains disadvantaged, HSBC analyst David McCarthy said in a note. He raised the shares to hold.

“The U.K. grocery sector is much more benign than the share prices exhibit," Richard Clarke, an analyst at Sanford C. Bernstein, said by phone. “We’re not as close to Armageddon as some would have you believe."

Tesco shares have fallen 15 percent in 2015, while Morrison has slid 19 percent. Sainsbury is little changed.

Short sellers, who seek to profit from a falling share price, are still targeting Sainsbury and Morrison. Last week, short interest in Sainsbury reached 17.3 percent of its shares outstanding, the highest this year, while short interest in Morrison reached a record 21.4 percent of its stock.

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