Goldman Sachs names the ASX retail shares to buy and the ones to avoid

The retail sector certainly is a tricky place to invest right now. The recently announced six-week lockdown in Melbourne and the decline in forecast immigration are expected to weigh heavily on some retailers.

Analysts at Goldman Sachs have been busy running the rule over the sector and have picked out a few companies which they feel will be winners and losers in FY 2020 and FY 2021.  

What did Goldman Sachs find?

First and foremost, Goldman Sachs favours consumer staples over discretionary retailers. It has buy ratings on the likes of Coles Group Ltd (ASX: COL) and Metcash Limited (ASX: MTS). This is because in the current environment, it feels predictability of earnings is very valuable.

Outside this, here is a summary of how it feels a number of key retailers will perform in the near term:

Domino’s Pizza Enterprises Ltd (ASX: DMP)

Goldman Sachs is positive on Domino’s and has a buy rating and $67.70 price target on its shares. It commented: “While we expect the growth rate for Cafés, restaurants and takeaways foods to be negative in FY21 and stronger at +15.8% in FY22, we believe DMP is unlikely to see these variations due to the higher share of digital sales in the business (72.4% of sales in 1H20). We forecast DMP to see 4% comp growth in FY21 and +4.5% in FY22, after +1.7% in FY20 (due to hard lock downs in NZ in 2H20).”

Harvey Norman Holdings Limited (ASX: HVN) and JB Hi-Fi Limited (ASX: JBH)

JB Hi-Fi and Harvey Norman have been very impressive performers during the pandemic, but the broker doesn’t expect this form to carry over into FY 2021. Next year it expects JB Hi-Fi to report a 3.8% decline in sales and Harvey Norman to post a 1.3% decline in sales. Goldman has a neutral rating and $39.90 price target on the JB Hi-Fi share price, but a buy rating and $4.25 price target on the Harvey Norman share price.

Premier Investments Limited (ASX: PMV)

The broker has a neutral rating and $13.70 price target on this retail conglomerate’s shares. It has “forecast all apparel brands to see double digit declines in FY20 before largely returning to FY19 sales levels by FY21.” However, it does have concerns that the key Smiggle brand might have a slower recovery in its sales. Goldman is predicting 10% growth in FY 2021 after a 20% decline in FY 2020.

Super Retail Group Ltd (ASX: SUL)

Goldman Sachs is bullish on Super Retail and has retained its buy rating and lifted its price target slightly to $10.20. Thanks to the diversity of its businesses, it doesn’t believe the company will have been impacted too greatly during the pandemic. It explained: “We forecast the leisure brands BCF and Macpac to see negative growth at -1.6% and -10% respectively in FY20 while SupercheapAuto and Rebel are forecast to grow at +3.4% and +2.3% respectively. We forecast all four brands to grow at low single digit in FY21.”

Wesfarmers Ltd (ASX: WES)

Goldman has a neutral rating and $42.50 price target on Wesfarmers shares. Its analysts said: “We forecast Bunnings and Officeworks to have seen strong growth at +11.7% and +17.5% respectively in FY20 but forecast FY21 sales to decline by -1.7% and -1.8%. We forecast the department stores (Kmart and Target) to see stronger declines of -3% and -9.5% respectively over FY21.”

More reading

• My bull and bear case for the ASX share market
• Plummeting retail spend puts ASX fashion shares under the microscope
• Why Coles, Kogan, Northern Star, & Splitit are charging higher
• Why I would buy Nanosonics and these ASX growth shares
• These ASX shares are swept up by the new Victorian COVID-19 lockdown

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Premier Investments Limited and Super Retail Group Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Wesfarmers Limited. The Motley Fool Australia has recommended Domino’s Pizza Enterprises Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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