Why JB Hi-Fi Share Price is Climbing

What happened to JB Hi-Fi Share Price?

JB Hi-Fi Limited [ASX:JBH] shares have gained 4.89% today. At time of writing, shares are trading at $28.11 up from $26.80 yesterday.

Why the share price rise?

JB Hi Fi is having a great 2018 so far. Shares have climbed over 13% since the beginning of the year.

The latest surge is due to Morgan Stanley upgrading the company to overweight. Mostly because Amazon´s recent launch had small impact, and retail results during Christmas were better than expected.

As Morgan Stanley wrote, courtesy of The Sydney Morning Herald:

Retail stocks are up 5.8 per cent since the start of December as negative pre-Christmas sentiment has now turned to an expectation of “better than feared” interim results. 

We agree with our consumer team that recent lows in multiples did not give much room for optimism to emerge, further Amazon’s initial launch underwhelmed market expectations.

“Our consumer team has lifted JB Hi-Fi to overweight on the expectation of solid trading and upside to earnings post-interim results.  

We back this conviction into earnings and add JBH to our model portfolio replacing Aconex, which is now under takeover offer.’

What now for JB Hi-Fi?

This doesn’t mean retail stocks are out of the woods.

There are still concerns for the sector as the Australian housing market slows, there is high consumer debt and low wage growth.

As Morgan Stanley´s team continued:

Our broader view is to still caution a wholesale rotation towards consumer-facing stocks at this juncture.

Our view of a slowing housing market, low wages and rising cost of living give little scope for a sustained cyclical rebound in the consumer sector.

Furthermore, the structural issues around Amazon-led disruption and continued increases in competitive intensity have far from abated in the medium term.

Amazon is renowned for playing the long game by reinvesting profits to increase growth and market share. While Amazon´s launch may have not been as spectacular as expected, it is still too early to tell what will be Amazon´s impact on Australian retailers.

If you’re looking at investing but are not sure where to start, check out our report on ‘The Four Best ASX Stocks for 2018’ here.

Selva Freigedo,

For Money Morning

Selva Freigedo is an analyst at Money Morning. She has a background in financial economics, but what makes Selva´s experiences different to many are the places she has lived and worked. Born in Argentina, she has also lived in Brazil, the US, Spain, and now Australia. She has seen up close many of the economic phenomena that worry Fat Tail Investment Research readers, like hyperinflation, bank bail-ins and governments burdened with so much debt it cannot possibly be repaid.

Every week, she goes through each article, research note and recommendation produced by our experts around the world to give you information on how to build and protect your wealth. Selva packages the week’s best ideas into one easy to read report: Port Phillip Insider Extra.

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