If you felt you've missed the opportunity to buy shares in JB Hi-Fi Limited (ASX: JBH) after its stunning ~6% rally over the past two days should take heart from a report by Morgan Stanley.
The broker thinks there is plenty of upside left in the stock and is even tipping that there is an 80%+ chance that the music and electronics retailer will continue to outperform the S&P/ASX 200 (Index:^AXDJ) (ASX:XDJ) over the next 43-odd days.
The broker's optimism stems from its belief that the Christmas trading period has been a strong one for the retailer.
Morgan Stanley is also less worried about the arrival of Amazon.com in Australia as its launch had been lacklustre at best with most retailers reporting that they have felt little impact from the launch of the online shopping giant.
"Despite the recent rally we see the shares at 12.9 times FY18 P/E as cheap on an absolute and relative basis," said the broker.
There is increasing upside risk that JB Hi-Fi will deliver a pleasing profit result and outlook statement at next month's reporting season, and that may be enough to keep the stock rallying through the next few weeks.
The surprisingly strong retail sales figures from the Australian Bureau of Statistics (ABS) are adding to confidence of a pleasing result from JB H-Fi and its rival Harvey Norman Holdings Limited (ASX: HVN) as sales of consumer electronics had been particularly strong.
Morgan Stanley has an "overweight" recommendation on the stock with a price target of $32 a share.
It strikes me that well managed retailers that have been performing well before the arrival of Amazon should continue to do well, while those like department store Myer Holdings Ltd (ASX: MYR) and apparel retailer Speciality Fashion Group Ltd. (ASX: SFH) will likely struggle in the interim.
Having said that, I would be cautious about being too bullish on the likes of JB Hi-Fi as I am still unclear about their strategy in combating Amazon. Amazon seems to have taken a fairly passive approach in winning market share and have run few promotions of any note.
But if the sleeping giant was to awaken one day and decided to go for a land grab, it will likely be an ugly scene for the sector.
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