Leading broker says Adairs (ASX:ADH) share price is a buy

Here's why this leading broker is positive on Adairs…

| More on:
A man eases back onto his sofa, happy with the relaxed vibe from his furniture.

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

sdf

The Adairs Ltd (ASX: ADH) share price has been out of form in recent weeks despite the release of a strong full year result last month.

Since this time in August, the homewares and home furnishings retailer's shares are down 9%.

Is the Adairs share price good value?

While the decline in the Adairs share price over the last few weeks has been disappointing, one leading broker believes it could be a buying opportunity.

According to a recent note out of Morgans, its analysts have upgraded the company's shares to an add rating with a $4.20 price target.

Based on the current Adairs share price of $3.89, this implies potential upside of 8% over the next 12 months excluding dividends.

And with Morgans forecasting a fully franked 22 cents per share dividend in FY 2022, this potential return stretches to just over 13.5% including them.

What did Morgans say?

Morgans was very impressed with Adairs' performance in FY 2021. And while the start of FY 2022 has been tough for the retailer because of lockdowns, it remains positive on the longer term. It also highlights that the Adairs share price is cheap in comparison to peers.

The broker said: "ADH's early FY22 experience is in line with most retailers who have reported to date, as store closures impact in-store sales, partially offset by online growth. There remains a lot to like about this investment case: 80% of sales coming from loyal Linen Lover members; GLA growth via new stores and upsizing; DC cost efficiencies to flow from 2QFY22; and 37% of sales online (inflated in FY21 by lockdowns) combined with a highly profitable store network."

"We upgrade to an Add rating (from Hold). Despite EPS revisions in FY22, ADH is one of the cheapest retailers in the sector (CY22F PE of <10x). ADH has a strong BS, loyal customer base and various growth options. There is of course a question mark over whether elevated GMs are sustainable long term, like most retailers. However, at this valuation, we see enough safety in the numbers," it added.

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 recommended ADAIRS FPO. The Motley Fool Australia owns shares of and has recommended ADAIRS FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Broker Notes

A young man wearing a black and white striped t-shirt looks surprised.
Broker Notes

These ASX 200 shares could rise 25% to 80%

Analysts think big returns could be on offer from these shares.

Read more »

Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A group of three miners in hard hats and high visibility vests confer at a rocky mining site.
Broker Notes

Up 66% in a year, just how much more upside does Macquarie tip for Perseus Mining shares?

Just how much higher might Perseus Mining shares soar? Here’s what Macquarie had to say about the ASX 200 gold…

Read more »

Rising share price chart.
Broker Notes

Why this exciting ASX 200 share could rise almost 50%

Bell Potter has good things to say about this biopharmaceutical company.

Read more »

Buy and sell written on silver cubes on a stock market chart.
Broker Notes

2 buys and 2 sells in the ASX 200 financials sector: analysts

We reveal what the experts think of these ASX 200 financial shares.

Read more »

Person pointing at an increasing blue graph which represents a rising share price.
Broker Notes

These ASX 200 shares could rise 33% to 37%

Analysts at Morgans think these shares could deliver big returns.

Read more »

Female miner in hard hat and safety vest on laptop with mining drill in background.
Broker Notes

Experts reveal 2 buys and 1 sell in the ASX 200 materials sector

And they're not all mining companies, either.

Read more »

A smiling miner wearing a high vis vest and yellow hardhat does the thumbs up in front of an open pit copper mine.
Broker Notes

Why Macquarie expects this ASX All Ords copper stock to soar 48% in a year

Macquarie forecasts another big year of gains ahead for this ASX All Ords copper stock. But why?

Read more »