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ASOS shares lifted by Morgan Stanley upgrade

After last week’s profit warning-inspired plunge, Morgan Stanley believes ASOS is now fairly valued

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Morgan Stanley had been an ASOS bear since the end of 2017

ASOS PLC (LON:ASC) got a much-needed boost on Wednesday as an upgrade from analysts at Morgan Stanley lifted the fast fashion retailer’s share price.

Shares plunged last week after the AIM-listed company warned teething troubles at its US warehouse would lead to a 70% drop in profits this year.

READ: ASOS predicts 70% plunge in annual profits

But they recovered some of those losses today, rallying 7.5% to 2,397.1p after Morgan Stanley moved the stock to ‘equal weight’ rating, up from ‘underweight’ previously.

The heavyweight investment bank had been bearish on ASOS for the past 18 months, but after the recent share price fall, it reckons the risk-reward is now more balanced.

“ASOS shares are now down nearly 65% over the last year and, in our view, the current levels more fairly reflect our views of the business,” said the analysts in a note to clients.

“We update forecasts for last week's profit warning and lower our price target from 2,200p to 2,100p.

“Although we now sit 40% below consensus EBIT by FY21, we think the current level is reflective of our more conservative estimates (and sell-side consensus does not yet fully reflect last week's announcement). With only 3% downside to our price target, we upgrade to ‘equal weight’.”

Quick facts: ASOS PLC

Price: 2820 GBX

AIM:ASC
Market: AIM
Market Cap: £2.81 billion
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