Collected Wisdom

This week we look at Woolworths, Harvey Norman, Flight Centre, Perpetual and Ramsay Health Care.

Summary: Uncertainty surrounds Woolworths given the risk of a price war with competitors Coles and Aldi, while analysts bullish on Harvey Norman say strong housing starts numbers will turn into completions and benefit HVN shareholders. Flight Centre has a solid balance sheet and the potential to make acquisitions, analysts see value in Perpetual and the market finds plenty to like in Ramsay Health Care.

Key take-out: Woolworths has had a tough 12 months and analysts anticipate the company’s weak momentum will remain into FY16.

Key beneficiaries: General investors. Category: Shares.

This is an edited summary of the Australian investment press: It includes investment newsletters, major daily newspapers and broker reports. The recommendations offered represent the views published in the other publications and may not represent those of Eureka Report. This article is general advice only which has been prepared without taking into account your objectives, financial situation or needs. Before acting on it you should consider its appropriateness, having regard to your objectives, financial situation and needs.

Woolworths Limited (WOW)

It has been a tough 12 months for the retailer which has come off a high of $38 to sit at $25.92 at the time of writing and it does not look to be getting any easier after Woolworths announced its results on August 28. Former Lion Nathan CEO Gordon Cairns steps up into the rather daunting role of chairman and is immediately faced with a search for a new CEO.

There was nothing surprising about the result for analysts as the company's struggles were well flagged to the market. The group has indicated further heavy price and service investments to be made however so far analysts have not seen an indication of this making a meaningful impact stating it is likely to take 12-24 months before results are back on track.

Right now uncertainty surrounds WOW and its competitors Coles and Aldi will not be taking their foot off the pedal, with one analyst stating the risk of a price war between them has only increased. Additionally analysts anticipate WOW to carry forward this weak momentum into FY16. Consensus currently has WOW as a sell with an average 12 month price target of $26.55 with the most bearish forecast at $21.

  • Investors are generally advised to sell Woolworths at current levels.

Harvey Norman (HVN)

Gerry Harvey and co delivered the results for retailer HVN last week and they did not disappoint, meeting analyst expectations with a strong result buoyed by the momentum of the metropolitan housing boom. Going forward analysts who are positive on HVN say the previous strong housing starts numbers will soon be turning into completions with HVN shareholders to benefit as people kit out their homes.

Looking forward, it is interesting to see the company has split analysts right down the middle with an even number calling the furniture retailer a buy and a sell with one sitting on the fence. Those positive on the stock still point towards strong housing numbers as well as ongoing efforts to improve operational efficiencies.

Conversely those analysts negative on the stock also point towards the housing cycle with a slow down their main concern. Last year’s sales growth will be hard to replicate plus consumer confidence is also expected to impact discretionary retail.

The average 12 month price target for HVN is $4.32 with the most bullish at $5 and the most bearish case at $3.80. At the time of writing the share price was $4.39.

  • Analysts are evenly split between advising to buy and sell Harvey Norman.

Flight Centre Travel Group (FLT)

The most disappointing thing about the FLT result was the lack of plane/travel related puns in the headlines of the broker research. The travel group’s result managed to beat most analysts’ expectations with inbound travel growth offsetting domestic outbound travel thanks to the continuing decline in the Australian dollar. Analysts positive on FLT pointed towards their international divisions holding strongly with the US and UK EBIT up 69 per cent and 24 per cent respectively.

Analysts also pointed towards the solid balance sheet with $565 million of cash at hand. FLT has flagged potential acquisitions for FY16. Acquisitions are most likely to fall in the category of destination brands and online businesses.

Those on the sell side have pointed to structural headwinds as concerns for the travel group with its traditional shop front approach under threat from the growing number of online travel agents and the web presence of the airlines themselves.

The consensus is FLT is a buy with a 12 month average price target of $39.94, with the most bullish case at $43.40 and the bearish at $35.46. At the time of writing the group was trading at $37.13.

  • Investors are generally advised to buy Flight Centre at current levels.

Perpetual Limited (PPT)

The financial services company handed down its result on August 27 beating consensus expectations. PPT’s strong leverage to stock market performance spurred on the result for the first half of FY15 but as markets weakened towards the back half there were net outflows of funds under management/advice. The continuation of volatile markets into FY16 has analysts watchful.

The main contributors to the result were Perpetual Private and the Global Share Fund. As stated PPT’s performance is leveraged to the market. Popular markets mean meaningful growth for PPT.

Analysts are seeing value in PPT with six out of 10 listing it as a buy and the other four sitting neutral with a hold. The twelve month average price target is $48.08 with the most bullish case at $52.21 and the extreme bearish case at $45.78. The share price at the time of writing was $39.78.

  • Investors are generally advised to buy Perpetual at current levels.

Ramsay Health Care (RHC)

RHC announced its results on August 27 and there was plenty to like with the stock beating the majority of analysts’ expectations with one left pondering if there was a more consistent and better quality stock on the ASX.

Analysts pointed towards the strong results in the UK and France with the UK operation achieving its best ever result. On top of this, earnings guidance provided by the health care company has been widely declared by analysts to be on the conservative side at 12-14 per cent. All expect RHC to exceed this.

The current average 12 month price target is $68.27 with the most bullish case at $75 and the most bearish at $64.72. Analysts are divided on their call with a lot already pricing in the FY16 upside. Of the 12 surveyed five have RHC a buy, five a hold and two as a sell.

  • Investors are generally advised to buy Ramsay Health Care at current levels.

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