Australia | Nov 09 2007
By Chris Shaw
Retailer David Jones ((DJS)) has delivered a solid set of first quarter sales numbers in reporting growth of 9.7% and like-for-like sales growth of 6.7%, but broker opinion remains divided as to whether or not such results can be maintained and if there is value in the stock at current levels.
In the yes camp are Merrill Lynch, UBS and Deutsche Bank, all of which rate the stock as a Buy. For Merrills the quarterly result sets the company up to beat FY08 profit guidance, as like-for-like sales in particular should continue to be stronger than the level on which the earnings guidance has been based.
The broker expects continued good performance leading into Christmas, a view Deutsche Bank shares given the strong current momentum implied by the first quarter result.
UBS points out the like-for-like sales result was better than it had expected and this means the company is likely to lift full year guidance when it reports its half-year result next February.
In addition it notes the stock has underperformed the broader market over the past few months, creating an opportunity for investors to get set now before the expected increase to earnings guidance.
Earnings per share forecasts for the three brokers suggest an EPS (earnings per share) outcome of around 27c this year and between 29-32c in FY09, which puts the stock on a FY09 P/E (price to earnings ratio) of less than 16x for next year. The yield also looks attractive at a little over 5% in FY08 based on Deutsche Bank’s estimates.
Citi doesn’t agree with such an optimistic assessment of the company’s outlook though, suggesting instead like-for-like sales are likely to trend lower in coming periods as the company will be recycling tougher comparable numbers. ABN Amro made the same point in its assessment of the sales result but has retained its neutral rating.
Citi suggests the stock is fully priced at current levels, as investors are already paying up for growth options likely to be considered over the next three years. In its view the stock is a Sell.
Macquarie agrees the shares are fully priced at present but considers the outlook for the company remains positive, so rather than sell the shares it advises investors to Hold the stock at current levels.
The FNArena database shows of the nine brokers to cover the company four rate it as Hold, two as Sell and three as Buy, but current momentum is on the Buy side given UBS and Deutsche upgraded their recommendations following the sales figures.
Early trading this morning confirms this as the stock as at 11.20am was 13c or 2.7% higher at $4.93. This compares to an average price target according to the FNArena database of $5.05 and a median price target according to Thomson One Analytics of $4.33.