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Key points
- JB Hi-Fi shares push higher following broker upgrade.
- Morgans believes the retailer's shares are a buy after recent weakness
- Its analysts predict significant upside and generous yields in 2022
The JB Hi-Fi Limited (ASX: JBH) share price has started the week in fine form.
At the time of writing, the retail giant's shares are up 2.5% to $46.22.
Why is the JB Hi-Fi share price pushing higher?
The catalyst for the rise in the JB Hi-Fi share price on Monday appears to have been the release of a bullish broker note out of Morgans this morning.
According to the note, the broker has upgraded the retailer's shares to an add rating and held firm with its price target of $54.00.
Based on the current JB Hi-Fi share price, this implies potential upside of 17% over the next 12 months. And that's before dividends. If you include the $2.17 per share fully franked dividend the broker is forecasting in FY 2022, this stretches the potential return to over 21%.
What did the broker say?
Morgans made the move largely on valuation grounds following a sharp pullback in the JB Hi-Fi share price in recent months. It feels this has brought its shares down to an attractive level which is below historic multiples.
It explained: "At the current share price, we believe JBH's valuation looks compelling. At a one-year forward EV/EBITDA of 7x and a one-year forward P/E of 16x, JBH is now considerably cheaper than its historical averages. On the basis of Factset consensus, JBH's FY1 EV/EBITDA multiple is 15% lower than the average of the past three years and its FY1 P/E is 11% lower."
And while its analysts aren't expecting JB Hi-Fi's half year results next month to be as strong as the prior corresponding period, they do see upside risk to forecasts.
Morgans commented: "We forecast 7% lower sales ($4.6bn); 19% lower EBITDA ($464m on an AASB 16 basis); and 21% lower NPAT ($250m). [At its AGM] JBH reported 'heightened customer demand' in the period. If these dynamics continued in 2Q22, there could be upside risk to our 1H22 estimates and those of the market."
All in all, the broker believes the sum of the above makes JB Hi-Fi's shares a great option for investors in the retail sector right now.
