Brokers have been quick to pass judgement on JB Hi-Fi Limited's (ASX: JBH) profit results which sent to stock racing to a new record high today.
The JBH share price jumped 4.9% to $49.64 in after lunch trade when the S&P/ASX 200 Index (Index:^AXJO) floundered and sank 0.7%.
JB Hi-Fi Results lift all boats
The retailer posted a 33% increase in FY20 underlying net profit of A$332.7 million, which is above management's guidance of $325 million to $330 million.
The good result lifted shares in fellow retailers too. The Harvey Norman Holdings Limited (ASX: HVN) share price rallied 4.6% to $4.29 while the Super Retail Group Ltd (ASX: SUL) share price gained 2.3% to $9.65 at the time of writing.
Cash was the big surprise in JB Hi-Fi's results
But it may not be JB Hi-Fi's net profit beat that's firing up the stock. The group's bottom line missed Goldman Sachs' forecast by around 3% but it was the operating cash flow that the broker called a "significant surprise".
JB's operating cash flow came in at $819.5 million for the year, which was miles ahead of Goldman's estimates of $360.1 million and consensus of $531.6 million.
Cash is king in this COVID-19 stricken recession and JB Hi-Fi is delivering in spades. The strong cash flow allowed the group to declare a final dividend of 90 cents a share, which again was well ahead of Goldman's forecast of 70 cents a share.
But the strong result wasn't enough to convince Goldman to upgrade its "neutral" rating on the stock and its price target sits at $44.40 a share.
Margin squeeze a worry
Citigroup also wasn't impressed enough with JB Hi-Fi's result to change its "sell" recommendation on the stock.
While there were lots to like with the group's results, such as the better than expected performance from its Good Guys business and strong net cash position, Citi pointed to several negatives too. For instance, second half gross margins fell even as sales surged.
"A 25bps [basis point] gross margin contraction at the group level is surprising, given the lack of promotional activity in the period," said Citi.
"While the contraction is mix-driven, we would expect underlying gross margin accretion."
The broker also noted signs that the group is running out of stock for some products and this poses a risk to sales in the current half.
Citi's price target on JB Hi-Fi is $42 a share.
Good news can't last
JB Hi-Fi's results also failed to impress Macquarie Group Ltd (ASX: MQG) as the broker held its "neutral" recommendation on the stock with a price target of $41 a share.
Like-for-Like sales at JB's Australian chain were the standout at 12.2%, which is comfortably ahead of Macquarie's expectation at 10.8%.
Earnings before interest and tax (EBIT) at the Good Guys division was also better than the broker's estimates.
However, Macquarie believes the good news is already reflected in JB Hi-Fi's current share price.
"Overall, result was ahead of expectations and July 2020 comps are well above market expectations," said the broker.
"However, near-term risks to discretionary spend are high in our view and the impressive comps likely cannot be maintained throughout year."
