Investors should sell Westfield Corp Ltd (ASX: WFD) before the shopping centre giant reports its half year results next week as its share price is likely to underperform on the news, according to Morgan Stanley.
It's hard to imagine that Westfield can disappoint further when it announces its interim profit numbers next Wednesday (16 August) given that expectations are probably set quite low for Westfield with the stock struggling to bounce off a near three-year low. But the broker thinks there is a 70% to 80% probability that the stock will lag the market and its peers over the next two months.
The sell trigger will come when consensus forecasts downgrade funds from operations (FFO) growth for the group for FY18 on the result next week as Morgan Stanley thinks management will give little for shareholders to look forward to as it confirms FFO and dividend guidance for the current year.
As it stands, consensus is tipping FY18 FFO growth of 8% and the broker thinks that is two percentage points above where it should be.
The latest set of bullish retail sales data from the Australian Bureau of Statistics, which showed a 3.8% year-on-year rise in June, is unlikely to sway Morgan Stanley's bearish view on the stock. Supermarkets appear to be the winners with sales from that category jumping 4% and accelerating.
But Westfield isn't the only shopping centre operator investors should avoid.
Morgan Stanley is also tipping a similar outcome for Scentre Group (ASX: SCG) when it reports its half year numbers on 24 August.
"Whilst we expect SCG to confirm FY17 guidance, we believe that operating metrics and industry data will continue to point at slowing rents, rising capex requirements, which are not yet reflected in the valuation premium," explained Morgan Stanley.
The broker has an "underweight" recommendation on both stocks. Perhaps it isn't a bad idea to use the proceeds from selling either stock to buy into embattled supermarket giant Woolworths Limited (ASX: WOW) given the latest ABS data. Woolworths may have finally turned a corner and its full year results on 23 August will be closely watched by the market.
Westfield and Scentre Group aren't the only stocks that are likely to come under pressure this month. The experts at the Motley Fool have uncovered three other stocks you should avoid. Click below to see for free which three you shouldn't hold in your portfolio.
