RBC Capital upgrades Dixons Carphone, JD Sports
RBC Capital Markets upgraded its rating on JD Sports and Dixons Carphone on Friday.
Both stocks were lifted to ‘sector perform’ from ‘underperform’ with JD’s price target upped to 825p from 735p and Dixons’ to 100p from 75p.
As far as JD is concerned, RBC said it expects the UK to prove relatively resilient, due to higher conversion and stronger digital sales, while the US offers a strong self-help and recovery story.
The valuation is still fairly high but fair, RBC said, given JD's growth and prospect of increased profit before tax guidance in January.
"In the UK we think JD is benefiting from strong consumer demand for sports fashion and footwear, its relatively balanced 50:50 interior/exterior facing store mix, and from its digital offer, which has performed better than expectations this year," it said.
"We think JD's budgeted store LFL sales of -20% year-on-year over peak look conservative, even with more restrictions on entertainment venues, which will reduce the impulse to buy sports fashion, as higher conversion should mainly offset footfall down more than 10% yoy.
"This should be helpful for margins given JD's higher fixed costs in store."
As far as Dixons is concerned, RBC highlighted its exposure to a strong UK household electricals market and its material international presence which is performing well, albeit with likely macro headwinds to come in 2021.
The bank said the valuation is reasonable, with consensus profit upgrades likely to be supportive in the near term.
"We think a sustained improvement in home related retail spend is benefiting DC. DC generates around a third of sales from appliances, which should benefit from higher housing activity, and going forward home office equipment, TV, and gaming sales are likely to be strong, helped by console launches in November," it said.
At 1420 BST, JD shares were up 3.5% at 804.60p, while Dixons shares were up 4.1% at 105.20p.