Why this broker thinks the Metcash (ASX:MTS) share price is great value

Is this ASX share great value right now?

| More on:
Smiling female investor holds hands up in victory in front of a laptop

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Metcash Limited (ASX: MTS) share price was on form on Tuesday and pushed higher.

The wholesales distributor's shares rose just over 2% to $3.68. This means the Metcash share price is now up 28% since this time last year.

Why did the Metcash share price push higher?

As well as getting a lift from a broad market rebound today, the Metcash share price was boosted by a broker note out of Goldman Sachs.

According to the note, the broker has retained its buy rating and $3.95 price target on its shares.

Based on the current Metcash share price, this price target implies potential upside of 7.3% over the next 12 months excluding dividends. Including them, the potential return stretches to approximately 12.5%.

What did the broker say?

Goldman Sachs appears confident that Metcash will deliver a strong full year result for FY 2021 next week.

The broker is forecasting an 8.2% increase in revenue of $14,088 million for the 12 months. Goldman expects this to be driven by a 10.3% rise in Supermarket sales, a 17% jump in Liquor sales, and a 20.5% increase in Hardware sales. However, this will be offset slightly by a 32% decline in Convenience sales following the loss of contracts.

In respect to earnings, its analysts are expecting Metcash's underlying earnings before interest and tax (EBIT) to come in at $432.3 million, which is up 33.3% on the prior corresponding period.

Finally, on the bottom line, an underlying profit after tax of $281.5 million is being forecast by Goldman Sachs. This will be a 34% increase on FY 2020's underlying profit after tax of $209.7 million.

Based on its expectations for FY 2021, the Metcash share price is currently trading at 13x full year earnings. Though, it is worth noting that the company's earnings are forecast to soften in FY 2022 before growing again in FY 2023. This means its shares are actually trading at 15x FY 2022 earnings based on the broker's forecasts.

Still, based on its recommendation, this appears to be a level that the broker thinks is attractive and offers a compelling risk/reward.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

A man and woman sit at a desk staring intently at a laptop screen with papers next to them.
Opinions

Where I'd invest $5,000 in ASX 300 shares right now

These stocks look like excellent investments today.

Read more »

A man holding a cup of coffee puts his thumb up and smiles while at laptop.
Broker Notes

Goldman Sachs says these ASX 200 stocks are strong buys

The broker is feeling very bullish about these stocks. But why?

Read more »

Business woman watching stocks and trends while thinking
Share Market News

5 things to watch on the ASX 200 on Wednesday

Here's what to expect on the local market today.

Read more »

A woman's hand draws a stylised 'Top Ten' on a projected surface.
Share Gainers

Here are the top 10 ASX 200 shares today

It was another tough day for investors this Tuesday.

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why HMC Capital, Platinum, Sigma, and Skycity shares are dropping today

These shares are having a tough session on Tuesday. But why?

Read more »

A close-up photo of a ballot box with an Australian flag in front of it and a gentleman's hands placing his vote in the 2022 election inside the box
Share Market News

How these ASX 200 stocks are primed to gain from Labor's resounding Federal election win

With the Federal election in the rear-view, which ASX 200 stocks should I buy now?

Read more »

A man clenches his fists in excitement as gold coins fall from the sky.
Share Gainers

Why Dimerix, Evolution Mining, Inghams, and NextDC shares are charging higher today

These shares are rising when many are falling today. But why?

Read more »

Smiling young woman eating chocolate outdoors.
Share Market News

The See's Candies playbook for ASX investors

Two ASX businesses that remind me of Buffett’s sweetest investment.

Read more »