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 its 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.
The post Why this broker thinks the Metcash (ASX:MTS) share price is great value appeared first on The Motley Fool Australia.
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