Australia | Aug 15 2008
By Chris Shaw
Not only did David Jones ((DJS)) deliver a June quarter sales result better than Merrill Lynch expected, reporting an increase of 0.8% against the broker’s forecast of a 2% decline, it also managed to lift its earnings guidance despite a weak consumer spending environment.
In the broker’s view the result only reinforced why it holds the company in such high regard and why the stock remains a Buy. New earnings guidance for the second half of 2008 is for growth of 20-25%, up from 8-13% previously thanks to good cost and inventory control.
The result also highlighted the quality of the company’s management team, the broker suggesting it is best in its class. In its view, the team is well able to take advantage of the growth opportunities it faces, which include the opening of new stores, the refurbishment of existing stores and an expansion of its exclusive brand portfolio.
Post the result the broker has lifted its earnings forecasts by 4.1% this year and by 3.3% in FY09, which puts its earnings per share (EPS) estimates at 28.8c this year and 30.8c in FY09. By way of comparison, UBS also rates the stock as a Buy and has increased its forecasts, estimating EPS outcomes of 28c and 30c respectively, while consensus forecasts according to the FNArena database are 28.5c and 30.2c.
Not all are as sold on the stock as Merrill Lynch and UBS. Credit Suisse is far more cautious on the outlook for FY09, expecting earnings next year to be flat given the group’s tough operating environment.While earnings growth should recommence in FY10 on the broker’s forecast,s it rates the stock as Neutral given the expected tough 12 months coming up.
ABN Amro agrees, suggesting the solid result announced yesterday was a reflection of cost control and this will need to continue given the sales and margin growth outlook is relatively flat. While it expects modest earnings growth of around 5% in FY09, the broker also sees the stock as only fair value at current levels.
Overall, the FNArena database shows the stock is rated as Buy three times and Hold six times, with an average price target of $4.37, up from $4.26 prior to the result. Merrill Lynch leads the way with a $5.00 target, while Credit Suisse is the most conservative with its $3.70 target. Thomson One Analytics shows a median price target of $4.08.
Today, shares in David Jones are down slightly and as at 12.40pm the stock was off 10c or 2.5% at $3.94 . This compares to a trading range over the past 12 months of $2.68 to $5.53.