Super Retail Group, JB Hi-Fi, Universal Store Holdings: Brokers vs Charts…Who wins?

Three Aussie retail stocks caught my eye yesterday. If you took out those rocket ship emoji-powered uranium stocks, they were among the top performing stocks on the ASX. The three stocks were: Super Retail (ASX: SUL), JB HiFi (ASX: JBH), and Universal Store Holdings (ASX: UNI).

I’ve discussed the ASX Consumer Discretionary sector in my Evening Updates a few times recently because of its improving technical picture. Today, I thought I’d mix the technicals with the fundamentals and see what the big brokers think about each stock, and then compare this to what each chart says.

The main reason for my desire to splice the technicals and fundamentals today, is the large number of downgrades Super Retail Group attracted after its trading update. As you’ll see below, the chart was a picture of excess demand heading into yesterday's news. The stock is trading down today, as is JB Hi-Fi and Universal Stores (albeit in a very soggy market!), so, let’s investigate whether Super Retail Group’s update has potentially signalled a short term top for Aussie discretionary retailers.

Super Retail Group (SUL)

Super Retail Group reported stronger sales on improved gross margins as they retained a tight grip on costs. Robust consumer demand during the period helped drive a big outperformance at Supercheap Auto and BCF, while Macpac is finally showing some signs of improvement. First half profit guidance was generally above market expectations.

What the brokers say

Consensus Rating: “Neutral”

Consensus Price Target: $15.10 (i.e., 6.2% below current price)

• Barrenjoey

  • Notes concerns over consumer resilience

  • Like for like sales are slowing

  • Views company’s commentary as cautious

  • Suggests possibility for capital management initiatives in 2024

  • Valuation already reflects strength in business

  • Retains “Neutral” rating and raises price target to $15.20 from $13.60

• Citi

  • Trading update ahead of broker’s expectations

  • Expects consumer still has plenty of spending power due to income growth, tax cuts

  • Appreciates strong margin performance, management’s control of costs and discounting

  • Retains “Buy” rating and raises price target to $19 from $18

• CLSA

  • Likes strong sales growth, dominant market share

  • Notes inconsistency across brands, however, points out weakness in Rebel

  • Sales and discounting well executed

  • Concerned about share price/valuation

  • Upgrades rating to “Buy” from “Underperform” and raises price target to $16.50 from $15.25

• Jarden

  • Likes gross margin and costs improvement

  • Sees risks in H2 as discretionary retail environment becomes more challenging

  • Management has done a good job, but consensus estimates are very optimistic

  • Notes concerned about valuation, sales trends, worsening cost outlook

  • Downgrades rating to “Underweight” from “Neutral” and raises price target to $14.50 from $12.90

• JP Morgan

  • Concerned about slowing sales, particularly at Rebel

  • Margins likely sticky vs pre-COVID levels

  • Recent price performance negatively impacts valuation

  • Downgrades rating to “Underweight” from “Neutral” and raises target to $15.50 from $13

• Macquarie

  • Appreciates quality of the result amidst tough operating conditions

  • Possibly as good as it gest given softer retail environment ahead vs rising costs

  • Retains “Neutral” rating and decreases price target from $12.60 from $12.76

• Morgans

  • Notes strong sales and margin performance

  • BFC was a standout, while Rebel underperformed

  • Likes good management

  • Stock price indicates full valuation

  • Downgrades rating to “Hold” from “Add” and raises price target to $17.50 from $17

• Morgan Stanley

  • Update beat broker’s expectations

  • Notes concerns about management’s commentary, signs of softer trading conditions ahead

  • Rising costs also likely to drag on earnings growth

  • Retains “Equal-weight” rating and price target of $11.50

• UBS

  • Update beat broker’s and consensus forecasts

  • Suggests momentum is slowing as consumers tighten belts in tough retail trading environment

  • Notes valuation not attractive at current price

  • Retains “Sell” rating and raises price target to $12.60 from $11.50

What the chart says

Super Retail Group is showing solid short and long term uptrends

ST/LT Trends: ⬆️/⬆️

Price Action: ⬅️➡️ (i.e., higher peaks & lower troughs)

Candles: ⬜

View: As a trend follower, I find this a very attractive chart! Super Retail Group’s price shows clear short and long term uptrends, as well as solid price action, and predominantly demand-side candles. All I see is excess demand!

Yes, the price has dipped today, no doubt because of the raft of downgrades at the brokers. But, note how demand stepped in this morning to soak up that selling. Buy-the-dip activity is another good sign of latent excess demand. 

In terms of key levels to watch, the 2 January peak at $15.88 should act as a short term point of demand. While the candles continue to be white bodied and or exhibit downward pointing shadows above this point the price action remains sound, and while the price continues to close above the short term trend ribbon the short term uptrend remains sound. 

JB Hi-Fi (JBH)

What the brokers say

Consensus Rating: “Neutral”

Consensus Price Target: $45.38 (i.e., 23% below current price)

JB HI-Fi hasn’t yet issued a first half trading update so there’s no recent commentary from the major brokers. With this in mind, I’ll just list each broker’s rating and price target.

• Citi

  • Rating is “Neutral” with a price target of $48

• Macquarie

  • Rating is “Neutral” with a price target of $55

• Morgan Stanley

  • Rating is “Underweight” with a price target of $40.40

• Ord Minnett

  • Rating is “Sell” with a price target of $36.50

• UBS

  • Rating is “Neutral” with a price target of $47

What the chart says

Super Retail Group is showing solid short and long term uptrends

ST/LT Trends: ⬆️/⬆️

Price Action: 📈

Candles: ⬜

View: Can I just go “Ditto” on JB Hi-Fi!? Another exemplary display of how excess demand manifests itself in price. I can’t see any major signs of excess supply to concern me too much about how far this stock has run - and boy has it run!

This is perhaps my only concern, and it is only a minor one. In my experience, the further the price of a stock moves away from my short term trend ribbon, the greater the possibility of mean reversion back to the trend ribbon.

The most curious thing about JB Hi-Fi and my “Broker vs Chart” investigation today is how wrong the brokers have been with their target price! Their average target price of $45.38 is a whopping 23% below JB Hi-Fi’s price at the time of writing.

It’s worth considering brokers don’t update their price targets every day. Rather, they typically only update their ratings and price targets after an event, like a trading update or a results release. So, you may find that broker price targets can lag the market price substantially - as the market price usually reflects changing expectations in real time. 

There’s a very good chance that at JB Hi-Fi’s next results release due next month, the brokers will issue substantial increases in their price targets to essentially “catch up” to the market price. Of course, this is what they disclose to us publically. You can be pretty sure the brokers’ valued clients are trading on the very latest company valuations!

Universal Store Holdings (UNI)

What the brokers say

Consensus Rating: “Buy”

Consensus Price Target: $4.25 (i.e., 0.3% below current price)

No trading update for Universal Store Holdings either, so also just listing each broker’s rating and price target.

• Bell Potter

  • Rating is “Buy” with a price target of $4.80

• Citi

  • Rating is “Buy” with a price target of $3.93

• Macquarie

  • Rating is “Neutral” with a price target of $4.00

• UBS

  • Rating is “Buy” with a price target of $4.25

What the chart says

Super Retail Group is showing solid short and long term uptrends

ST/LT Trends: ⬆️/⬆️

Price Action: 📈

Candles: ⬜

View: A very different chart indeed to the first two! Rather than bottom-left-top-right, we have more of a “turnaround” setup on Universal Store Holdings. This means the short term trend has swung back to up, and the long term downtrend is showing clear signs of weakening (see how the long term trend ribbon has transitioned to amber and is contracting). 

The price action since the short term trend turned up is generally higher peaks and higher troughs, and I observe a healthy increase in the number of demand-side candles. As far as I can tell, Universal Store Holdings appears to be increasingly transitioning into a state of excess demand.

It’s still early days, though, and in my experience turnaround setups carry with them a greater degree of risk as the trends are still developing. Still, I’m going to vote with the brokers on this one, and it will be interesting to see what they do with their price targets when Universal Store Holdings reports its first half results next month.

Carl’s Technical Analysis Methodology Key

Trends:

ST Trend ribbon: 21 & 34 EMAs || LT Trend ribbon: 144 & 233 EMAs

⬆️ = Uptrend, the ribbon is rising indicating a higher probability the market is in a general state of excess demand

⬇️= Downtrend, the ribbon is declining indicating a higher probability the market is in a general state of excess supply

➡️ = No trend, the ribbon is flattening indicating a higher probability the market is in equilibrium

Price Action

📈 = Rising peaks and rising troughs indicating buy-the-dip activity and supply removal (i.e., indicating a higher probability market is in a general state of excess demand)

📉 = Falling peaks and falling troughs indicating sell the rally activity and demand removal (i.e., indicating a higher probability market is in a general state of excess supply)

⬅️➡️ = Neither of the above scenarios, market price action is indecisive

Candles

⬜ = Predominantly demand-side candles in the recent past, i.e., white bodies and or downward-pointing shadows (i.e., indicating a higher probability market is in a general state of excess demand)

⬛ = Predominantly supply-side candles in the recent past, i.e., black bodies and or upward-pointing shadows (i.e., indicating a higher probability market is in a general state of excess supply)

⬜⬛ = Mixed, i.e., indicating no discernible trend towards demand-side or supply-side candles in the recent past