Consumer cyclical

Four stocks hit 12-month lows: Are they now cheap?

Mon 09 May 22, 4:19pm (AEST)
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Key Points

  • Harvey Norman is currently trading with 31.0% upside to a target of $6.05
  • Reece is currently trading with 14.10% upside to a target of $18.53
  • Aristocrat is currently trading with 48.2% upside to a target of $46.58
  • Star is currently trading with 41% upside to a target of $4.18

With the S&P/ASX 200 index now down -1.30% at a near 8-week low of 7137, there are now several stocks currently trading at or close to 12-month lows.

These include global gaming content and technology company , Aristocrat Leisure (ASX: ALL) down -2.46% to $31.35; big retailer, Harvey Norman (ASX: HVN) down -0.8% to $4.61; plumbing supplier, Reece (ASX: REH) down -3.81% to 6.18; and casino operator, Star Entertainment Group (ASX: SGR) down -2.30% to $2.97.

All four stocks have fallen between -12% and -23% in the last 12 months alone.

In light of these falls, Market Index looks for broker clues as to whether current price falls might make for attractive entry points:

Aristocrat Leisure

Brokers see value at current levels and based on those that cover Aristocrat (as reported on by FN Arena) the stock is currently trading with 48.2% upside to the target price of $46.58.

Despite signs of weakness in social gaming, UBS is encouraged by positive data for social casino with Aristocrat Leisure's revenue share edging upwards on a year-on-year view. The broker retains a Buy rating and price target of $49.00.

Credit Suisse retains an Outperform rating, and longer-term believes 20%, or US$400m, of digital revenue will come from new games in FY25, but notes lack of certainty in the new game pipeline. 

Target price of $43.50 is at the lower end of broker estimates.

Consensus on Aristocrat is Strong buy.

Based on Morningstar’s fair value of $38.72, the stock appears to be undervalued.

Harvey Norman

Brokers see value at current levels and based on those that cover Harvey Norman (as reported on by FN Arena), the stock is currently trading with 31.0% upside to the target price of $6.05.

With like-for-like sales having demonstrated a 1.5% lift early in the second half, UBS expects sales to remain strong – with working-from-home trends continuing to deliver an increased focus on home improvement and consumer technology ownership. 

As a result, the broker’s Buy rating is retained, and the target price decreases to $6.50 from $7.00.

Ord Minnett, the only contrarian on the stock, with a Hold recommendation, is cautious about the twelve months ahead, target price is at the lower end of broker projections at $5.60.

Consensus on Harvey Norman is Moderate buy.

Based on Morningstar’s value of $4.68, the stock appears to be fairly valued.

Reece

Brokers also see value at current levels and based on those that cover Reece (as reported on by FN Arena), the stock is currently trading with 14.10% upside to the target price of $18.53.

Ord Minnett is encouraged by Reece’s entrance into the US market three years ago which is now showing the growth opportunity in a large, fragmented market.

The broker retains a Buy rating with the price target moving to $23 from $21.50, which is at the higher end of the broker scale.

Both Morgan Stanley (target price $16.10) and Citi (target price $16.83) have issues with the valuation and maintain Underweight and Sell ratings respectively.

Consensus on Reece is Moderate buy.

Based on Morningstar’s fair value of $21.53, the stock appears to be undervalued.

Star Entertainment Group

Brokers see even more value at current levels and based on those that cover Star (as reported on by FN Arena), the stock is currently trading with 41% upside to the target price of $4.18.

Following Star’s recently announced strong first half result, Ord Minnett regards the group as a strong recovery play and retains an Accumulate and $4.40 target price.

UBS notes that in the near-term, gaming trends appear to be improving and retains a Buy, with the target price decreasing to $4.25.

Goldman Sachs remains constructive on Star, especially given its OpCo PropCo initiatives over the near to medium term, and valuation support. But the broker has downgraded to Neutral given relative upside, target price $3.75.

Having already moved on from the H1 result, down -87% on a year ago, Macquarie believes investors are looking forward to a catalyst-packed FY23.

The broker has an Outperform on the stock, and target price of $4.10, down from $4.25.

Consensus on Star is Moderate buy.

Based on Morningstar’s fair value of $4.31, the stock appears to be undervalued.

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In the last 12 months Star Entertainment Group's share price has fallen 23.66%.

Written By

Mark Story

Editor

Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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