Vaccine prompts analysts to call end of COVID retail boom

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Retailers and supermarkets, the surprise winners from the COVID lockdowns, could see their wings clipped as investors pin ther hopes on a COVID-19 vaccine landing early next year.

After months of growth, the consumer discretionary and consumer staple sectors underperformed the market on Wednesday, rising only 0.7 per cent and 1.4 per cent respectively compared to an overall gain of 1.7 per cent.

The pressure on the sectors comes after Macquarie and Morgans analysts this week rejigged their ratings on several stocks, arguing a vaccine would see consumer spending reverting to travel, services, and socialising rather than eating at home and updating household appliances.

“It is clear from (spending) data that home delivered food, and consumer durables retailers have had a very strong year,” Macquarie’s team wrote in a client note.

“We continue to view the 2020 Christmas season as likely to be a record-breaking year. However, the prospect of a COVID vaccine is highly likely to see these early gains revert over 2021.”

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The share price of electronics retailer JB Hi-Fi fell 4.4 per cent on Wednesday to a three-month low of $44.42. The stock had outperformed the ASX this year with a gain of 121 per cent between March and October, helped along by consumers flush with government stimulus.

Morgans analysts on Tuesday dropped their JB Hi-Fi target price by 15 per cent to $41.30 while Macquarie analysts dropped their target price by nearly 10 per cent to $49.50, cutting their rating to ‘neutral’ from ‘outperform’.

“While our earnings are largely unchanged at this stage, we have lowered multiples or valuations for those likely to suffer from a return to some sense of normality (redirection of spend); and vice versa for those who have been negatively impacted by COVID. This is a call on a material shift in sentiment towards COVID winners,” Morgans analysts said in a client note.

They also lowered their rating on Accent Group, Baby Bunting, Beacon Lighting, and Super Retail Group from Add to Hold.

Macquarie’s team noted Domino’s Pizza has been a COVID winner but believes sales will normalise as Australians get out of their house more and restaurants reopen. Domino’s shares were currently trading at 45 times earnings, putting them at risk of a correction. The stock has been downgraded to Underperform and the target price was cut from $84.30 to $72.10.

Similarly, IGA supplier Metcash benefitted from Australians visiting their local supermarket and bottle shop rather than travelling to large malls. But this trend was also expected to end as shoppers stop fearing larger crowded supermarkets, leading to a downgrade in Metcash’s target price to $3.05 and in rating to Neutral. It closed 0.3 per cent lower on Wednesday at $2.94.

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Lucy Battersby has covered trends, technology and telecommunications since joining The Age in 2008.

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