The Harvey Norman Holdings Limited (ASX: HVN) share price and the JB Hi-Fi Limited (ASX: JBH) share price have defied the market decline today and are both up around 1.5% in afternoon trade.
These gains have narrowed the declines made by their respective shares over the last 12 months to 25% for Harvey Norman and 21% for JB Hi-Fi.
Should you be buying their shares?
While I wouldn't be a buyer of Harvey Norman's shares, I do see a bit of value in JB Hi-Fi shares at these levels.
However, I would class it as a hold until it has released its half year results or provided a trading update.
This view is shared by Goldman Sachs, which this morning revealed that it has retained its neutral rating on JB Hi-Fi's shares following a look into the retail industry.
According to the note, Goldman Sachs' research is pointing to positive trading across technology categories during the Christmas period. This could mean that the JB Hi-Fi business performed better than expected over the period.
Another positive that Goldman has noted is the perceived improvement in rationality from retailers, which it believes could have helped ease the margin compression that was experienced in the first quarter of the financial year.
However, it is unclear at this stage whether the weakness in whitegoods continued during the period and weighed on the performance of it's the Good Guys business, offsetting the aforementioned positive trends. This would also be an issue for Harvey Norman business.
In light of this, Goldman Sachs has retained its neutral rating and $21.30 price target on JB Hi-Fi's shares and sell rating and $2.70 price target on Harvey Norman's shares.
I agree with Goldman on JB Hi-Fi and eagerly await its half year results in February.
What is expected next month?
The broker expects JB Hi-Fi to report sales of $3,842 million and EBIT of $232.3 million in the first half, driven by a comparable store sales growth of 2% from JB Hi-Fi Australia, 1% from The Good Guys business, and 2% from its New Zealand business.
For Harvey Norman is expects sales of $1776.5 million and EBIT of $295.7 million, with Australian comparable store sales down 1% due to its exposure to the struggling housing market.
