Citigroup upgrades Harvey Norman
April 20, 2010
Citigroup has upgraded Harvey Norman (BUY, price target $4.00) following yesterday’s third quarter sales result. The broker says 3Q weakness primarily reflects challenges in cycling fiscal stimulus, which should persist into 4Q10, but not beyond.
While the Citi downgraded its FY10 and FY11 eps forecasts, the broker argues that the shares were oversold and that sales will recover.
Citi says the weakness in sales was driven by the computer category, noting that retailers like HVN are suffering as they cycle out of the positive effects of fiscal stimulus in 2009. The broker points out the challenges will likely persist in 4Q10, but that sales conditions will normalise in FY11 as the stimulus effects will have passed.
Citi’s view is that HVN is likely to remain volatile with negative industry-wide newsflow in retailing over the next three months. However, the broker argues that the stock is compelling on valuation grounds, both on a fundamental basis and relative to peers.
With a 12-month target price of $4.00 per share, Citi expects a total return of 22.5%.
While the Citi downgraded its FY10 and FY11 eps forecasts, the broker argues that the shares were oversold and that sales will recover.
Citi says the weakness in sales was driven by the computer category, noting that retailers like HVN are suffering as they cycle out of the positive effects of fiscal stimulus in 2009. The broker points out the challenges will likely persist in 4Q10, but that sales conditions will normalise in FY11 as the stimulus effects will have passed.
Citi’s view is that HVN is likely to remain volatile with negative industry-wide newsflow in retailing over the next three months. However, the broker argues that the stock is compelling on valuation grounds, both on a fundamental basis and relative to peers.
With a 12-month target price of $4.00 per share, Citi expects a total return of 22.5%.
Leave a Reply