Analysts at UBS are optimistic about what could happen next with the JB Hi-Fi Ltd (ASX: JBH) share price despite rising around 15% over the last three days of trading.
The business reported a 7.3% increase in sales to $6.1 billion, an 8.1% rise in operating profit (EBIT) to $454 million, a 7.1% increase in earnings per share (EPS) to $2.80, and a 23.5% jump in the annual dividend per share to $2.10.
UBS noted that the result was stronger than it was expecting. Let's take a look at what was so good and why the broker is still bullish on the ASX retail share.
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A strong result
The broker said that there were market fears that the company would find it tough to deliver growth after a strong second quarter of FY25. But those fears "did not materialise".
UBS said that The Good Guys' EBIT was stronger than expected, with promotional periods being "well executed". The broker said that The Good Guys' EBIT margin was stronger thanks to a mixture of higher gross profit margin and lower cost of doing business (to sales) ratio.
The JB Hi-Fi Australia EBIT was also stronger than expected, partly thanks to the "flexibility" of its cost of doing business, which allows it to manage any slowing in sales.
After seeing those numbers, UBS decided to increase its estimate for JB Hi-Fi's forecast EPS by 5.6% and 5.3%. This was due to slightly higher sales and a much higher EBIT margin projected for The Good Guys, while JB Hi-Fi Australia is expected to see slightly higher sales and EBIT margin.
However, those EPS estimates also include lower projections for the JB Hi-Fi New Zealand and E&S divisions, though they are smaller contributors to the overall pie.
Is the JB Hi-Fi share price a buy?
UBS thinks it is, with a price target of $94, which implies a possible rise of around 7% over the next year.
The broker notes that the JB Hi-Fi price-to-earnings (P/E) ratio has decreased over the last several months, though it's still higher than it was last decade. UBS thinks this is justified because it's a large, growing business with an expandable total addressable market (TAM), it's gaining market share, it's good at managing costs, and it's prudent at managing capital.
UBS suggested it can be increasingly compared to businesses with higher P/E multiples, such as Wesfarmers Ltd (ASX: WES) and its retail divisions of Bunnings and Kmart. The broker concluded:
Given share price performance, 1H26 result above UBSe, and confidence on JBH being able to enjoy a higher earnings multiple vs history, the risk reward now appears attractive. Upgrade to Buy from Neutral.
