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JB Hi-Fi share price shoots higher on broker upgrade

The JB Hi-Fi Limited (ASX: JBH) share price has been among the best performers on the S&P/ASX 200 index this morning.

At the time of writing the retailer’s shares are up 3% to $27.65, but were as much as 4% higher in early trade.

Why is the JB Hi-Fi share price racing higher?

With no news out of the company, today’s gain appears to be attributable to a broker note out of Goldman Sachs this morning.

According to the note, the broker has upgraded the company’s shares to a buy rating and lifted the price target on them to $30.00 from $22.60. This price target implies potential upside of 8.5% excluding dividends and 13.5% with them.

Goldman made the move in response to the Coalition’s election victory, APRA’s plan to remove the 7% serviceability buffer on home loans, and the Reserve Bank’s shift to a more dovish stance.

As a result of these developments, the broker sees “greater certainty for the housing sector from a policy and, potentially, from a lending availability perspective.”

Adding that: “While, in our view, a difficult outlook remains for housing-related consumer stocks over the balance of FY19 and FY20, the risk to the downside around this outlook has improved due to the above trends and as the second derivative of house price declines has turned positive in recent months.”

This has led to the broker making positive revisions to its forecasts for JB Hi-Fi in FY19 and FY20.

Goldman has raised its “LFL sales growth expectations for FY19 and FY20 by 25bps and 100bps respectively while maintaining expectations on margins to reach a trough in FY20 before recovery in FY21.”

It also expects “a similar LFL increase on sales in The Good Guys for FY20 while maintaining all other estimates.”

The broker is less bullish on rival Harvey Norman Holdings Limited (ASX: HVN). Although it has bumped its price target up to $3.85 from $2.90, Goldman has retained its neutral rating on valuation grounds. At present the retailer’s shares are trading 2% higher at $4.10.

And finally, although not mentioned in this note, another retailer which the broker is bullish on is Adairs Ltd (ASX: ADH). Its most recent coverage on the home furnishings retailer revealed that Goldman rates it as a buy with a $2.45 price target. Adair’s shares are currently changing hands at a price of $1.90.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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