Citi cuts Lojas Renner stock rating but raises price target

Citi analysts downgraded Lojas Renner SA (LREN3) to Neutral from Buy, but raised the price target to R$20.50 from R$15.00, citing stronger-than-expected short-term sales momentum and projecting a 15.5% same-store sales growth for Q2 2025 due to easier comparisons. Earnings forecasts were increased by 12% for 2025 and 9% for 2026; however, the downgrade reflects a limited upside, as the stock's current P/E ratios of 13.3x and 11.5x for 2025 and 2026, respectively, approach Citi's implied target multiple of 12.5x for 2026.

Analysis

Citi has revised its stance on Lojas Renner SA (LREN3), downgrading the stock to Neutral from Buy, while concurrently increasing the price target to R$20.50 from R$15.00. This adjustment acknowledges stronger-than-anticipated short-term sales momentum, with Citi now projecting a significant 15.5% same-store sales growth for Q2 2025, a notable increase from the previous estimate of approximately 10% and the 10.8% recorded in Q1 2025. This anticipated acceleration is attributed to easier year-over-year comparisons, following extreme weather conditions and floods that impacted sales in the same period last year. Consequently, earnings forecasts for Lojas Renner have been upwardly revised by 12% for 2025 and 9% for 2026. Despite these positive operational revisions, the downgrade to Neutral is driven by valuation concerns, as Lojas Renner trades at price-to-earnings ratios of 13.3x for 2025 and 11.5x for 2026, approaching Citi's implied target multiple of 12.5x P/E for 2026, thereby suggesting limited further upside from current levels. Reinforcing this cautious valuation outlook, an InvestingPro AI analysis indicated LREN3 was not among the top-ranked undervalued stocks.

Key Decisions for Investors

• Investors should acknowledge Lojas Renner's improved operational outlook and raised earnings forecasts but note the Neutral rating suggests limited immediate upside as much of this positivity may be priced in.
• Given the stock is trading near Citi's 2026 target P/E multiple, prospective investors might await a more attractive entry point or carefully evaluate the remaining upside potential relative to the R$20.50 price target.
• Current shareholders might consider holding positions to capitalize on strong near-term sales momentum, while closely monitoring valuation metrics and the context provided by InvestingPro's assessment regarding its undervaluation status.