The rally in the Caltex Australia Limited (ASX: CTX) share price could be coming to an end with Morgan Stanley warnings there is a 70% to 80% chance that the stock will fall over the next 60 days.
The Caltex share price jumped 4.3% over the past month and is trading 0.8% higher in after lunch trade at $27.34 compared to the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index has slumped 0.5% this afternoon to take its one-month return to around 2.8%.
But the outperformance of Caltex following the completion of its $260 million off-market share buyback is a double-edged sword for shareholders as it has made the stock's valuation less compelling, although the broker pointed out that this isn't the only reason to dump the stock.
Margins under threat
"Caltex typically provide 1H guidance in June. Retail fuel margins were weak for Q119 and the data we track suggests this has not improved in April," said the broker.
"At the same time, refining margins are starting to slip given lower diesel cracks after improving in Jan-March. We see risk to consensus numbers."
Consensus earnings per share forecast from Reuters for FY19 is 197.68 cents per share compared with the 214 cents per share the group posted in FY18 (replacement cost basis before significant items).
While this puts the stock on a relatively undemanding FY19 price-earnings multiple of around 14 times, I too think there are better options for investors looking for exposure to the oil price or to retail.
Better options
Energy stocks like Santos Ltd (ASX: STO) and Oil Search Limited (ASX: OSH) provide more direct exposure to crude while I think Caltex's convenience store turnaround holds relatively high execution risks.
Those wanting to invest in consumer stocks are better off investing in retailers with a strong track record. This includes the Premier Investments Limited (ASX: PMV) share price and JB Hi-Fi Limited (ASX: JBH) share price.
New target for short-sellers?
What's also worth noting is that very little of Caltex's shares are short-sold. The latest ASIC data (which is a week old) indicates that only 1.9% of its shares on issue have been loaned to short-sellers.
That's only a slight uptick from 1.4% at the start of this month and this means there is plenty of room for short-sellers to target the stock.
Short-sellers are traders who borrow stock to sell on-market with the aim of buying it back at a lower price later to profit from the difference.
Morgan Stanley has an "underweight" recommendation on the stock with a price target of $25 per share.
