The JB Hi-Fi Limited (ASX: JBH) share price gained almost 2% in afternoon trading today after the company received a rating upgrade from broker Bell Porter.
The broker has revised JB Hi-Fi’s rating from a “sell” to “neutral”, despite saying the share price is already trading at fair value at current levels.
At the time of writing, the JB Hi-Fi share price is at $44.77, up by 85 cents.
Reason for the upgrade
Bell Porter believes that JB Hi-Fi will continue its strong results in the second-quarter, following a strong first-quarter update.
The broker expects the 27.6% like-for-like sales surge in the first quarter for the flagship brand, as well as the 30.9% surge in The Good Guys brand, will continue through to the second-quarter.
This, the broker says, is underpinned by the strong Black Friday-Cyber Monday sales in late November, and positive momentum heading into Christmas.
However, the broker says that the JB Hi-Fi share price is trading at roughly fair value right now, and has suggested a target price of $43.65.
Bell Porter analyst Sam Haddad says that it’s unlikely that sales growth will be maintained in 2021-22, and warns that “material negative like-for-like sales will emerge”.
The brokers forecasts 28% first-half sales growth, a 18% contraction in the second-half in 2020-21, followed by a full-year contraction of 6.1% in 2021-22.
JB Hi-Fi’s business model
JB Hi-Fi is one of Australia’s largest discount retailers in home entertainment. Its brand includes The Good Guys franchise, which it purchased in 2016. Its main competitor, Dick Smith Electronics, folded in 2016.
JB Hi-Fi’s competitive advantage is in its low-cost business model, where stores typically break even within one year. The company doesn’t have warehouses, and stocks its inventory on site in each outlet, minimising costs. Its business model thus relies on high volume and turnover.
JB Hi-Fi has cemented itself as the category killer in electronics similar to Bunnings, which is owned by Wesfarmers Ltd (ASX: WES), in the hardware space. The company has a network of 320 stores across Australia and New Zealand, and an online platform.
About the JB Hi-Fi share price this year
The JB Hi-Fi share price has been a runaway tear this year since March, rising by 92%. It began the year at $38 before dipping to $23.16 in March. It has since surged to today’s level, which represents a gain of 18% on a year-to-date basis.
The company commands a market value of $5 billion.
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Motley Fool contributor Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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