There's an 'opportunity brewing' with this ASX 200 share

Why one broker thinks this is a leading stock to own.

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Broker Wilsons has named S&P/ASX 200 Index (ASX: XJO) share Breville Group Ltd (ASX: BRG) an opportunity as it goes through a cyclical recovery.

Breville was founded in 1932 in Sydney and now sells kitchen products in more than 70 countries around the world.

It owns a number of brands including Breville, Sage, Lelit, Baratza, ChefSteps and Beanz.com (a coffee subscription and delivery).

Why Wilsons added Breville shares to the portfolio

There are five factors that make Breville a "high-quality cyclical, according to Wilsons.

First is a high-quality management team, with CEO Jim Clayton driving a successful growth strategy.

Second is its resilience – it has managed to grow earnings over the last two years, despite the difficult economic conditions and distortions after COVID-19.

Third is its consistency of margins. The business has maintained its profit margins over this cycle, "demonstrating the levers Breville has at its disposal".

Fourth is its balance sheet, Wilsons said the ASX 200 share is expected to be in a net cash position at the end of FY24, reducing the net interest expense and also providing "dry powder" for the next few years.

Wilsons suggests the balance sheet improvement is underappreciated, with effective inventory management and a subsequent reduction in net debt.

Finally, the broker said that Breville had a strong return on invested capital (ROIC) of 20%.

Why the ASX 200 share could grow earnings

Wilsons points to new product launches as a profit driver, with its sustained investment in research and development ensuring a healthy pipeline of "exciting new releases" catering to diverse geographic preferences, and expanding product categories, fuelling future growth.

The business has entered a number of new markets, establishing "a strong presence" in the United States, Europe and Asia Pacific. Since FY19, it has entered 17 new countries. Management has said it's halfway through its expansion, with anticipated completion within eight to ten years. There is also the possibility of expanding in China and India.

The broker also suggested the profit margins can keep growing thanks to economies of scale through global expansion.

Wilsons says the Breville share price valuation is "reasonable" because earnings are expected to grow by approximately 13% per annum between FY24 and FY26.

Motley Fool contributor Tristan Harrison 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 Scott Phillips.

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