MARKETS SPECTATOR: JB Hi-Fi looks up

JB Hi-Fi is one of the most shorted stocks on the market. But with Christmas around the corner, short sellers may have gotten it wrong.

Short sellers may soon regret their positions in electronics retailer JB Hi-Fi.

UBS has just upgraded JB Hi-Fi to buy from neutral as it predicts a strong Christmas trading period for the retailer.

The broker says that JB Hi-Fi reported a 3.8 per cent lift in first-quarter sales and a 2.4 per cent decline in like for like sales, in line with management expectations and UBS estimates for the first half ( 4 per cent).

There was no change to 2013 sales guidance for 5.5 per cent growth, which implies a pick-up on the year-to-date run-rate, reflective of the strong new product pipeline as we head into the key Christmas trading period (see UBS research October 24).

The broker believes JB Hi-Fi will outperform over the next three to six months, driven by:

– Improving trading environment: via one of the strongest periods of new product releases in recent years

– Easing discounting: driving a recovery in gross margins as has been evident through the first quarter of 2013.

– Consensus upgrades: as a result of the aforementioned factors, UBS estimates currently sit around 4 per cent ahead of consensus.

With the above in mind, UBS upgraded the stock to buy from neutral and lifted its price target to $10.70 from $9.95.

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Source: Iress

It’s interesting to note that at this point, JB Hi-Fi is among, if not the most shorted stock on the ASX with more than 20 per cent of shares on issue reported to be in the hands of short sellers.

There’s a growing consensus that the shorters have got it wrong and will be forced to buy back their positions over the coming months, which could exacerbate any upside moves in the stock.

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