Friday’s US Retail Sales report showed strong demand for automobiles and furniture, providing further evidence that the economy ended the fourth quarter with momentum at the retail level.
The Commerce Department reported that retail sales rose 0.6% in December after increasing by 0.2% in November. Sales were up 4.1% on a year-on-year basis from December 2015 and rose 3.3% for all of 2016 versus 2.3% for all of 2015.
The Core Retail sales figures, which exclude cars, gasoline, building materials and food, rose 0.2% after being flat in November.
The Core Sales data corresponds more closely with the consumer spending component of the GDP and printed below the 0.4% forecast. Despite the smaller gain in Core Retails sales, the consumer spending trend in the US remains solid.
Let’s take a quick look at a few names that should prosper from the Christmas period spending activity. In the US I’ve focused on Amazon and FedEx as two relevant examples and domestically, I’ve looked at Harvey Norman and JB HI-FI.
We had buy signals from the algo engine on these names and our preference was the long position in HVN, which has now rallied 10% from the November low.
Harvey Norman and JB Hi-Fi have sold off recently and now reflect at a “higher low” price formation within a broader uptrend. Our algo engine has triggered buy signals on both of these names, so we will take this opportunity to look a little closer.
Harvey Norman reported a solid Q1FY17 trading update, yet the share price has sold off over 15% following questions being raised over the group’s accrual accounting practises. The strong history of free cash flow generation should begin to dampen investor concerns and lift share prices.
FY17 revenue is likely to be up 7% year-on-year to $1.9b, EBITDA $650m and NPAT $375 which will be up 10% on FY16, placing HVN on a forward yield of 7%.
Momentum studies suggest HVN is worthy of consideration: FY15 to FY16 EPS growing by 25% or from $0.24 to $0.30 per share.