Although the Metcash Limited (ASX: MTS) share price is down almost 2% to $2.70 in morning trade, there may be gains ahead for the shares of this wholesaler and distributor according to one leading broker.
A research note out of Morgan Stanley this morning reveals that its analysts have retained their overweight rating and increased the price target on its shares from $2.80 to $3.00.
Based on the current share price, this implies potential upside in the region of 11% for investors.
According to the note, the broker believes that food inflation and the emergence of Aldi and Amazon will have a negative impact on food retailers.
But unlike Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES), which it feels are looking expensive, Morgan Stanley sees opportunities for Metcash to grow earnings through cost reductions.
Furthermore, the broker feels any pressure in the food business could be offset by its hardware business and acquisition opportunities.
Should you invest?
While I agree that Metcash is perhaps the more attractive on the three retailers at their current share prices, I wouldn't necessarily be in a rush to invest in its shares.
Given the competitive pressures that it faces, I don't believe there is enough upside potential to warrant an investment today.
Instead, I would suggest investors focus on other areas of the share market with favourable tailwinds such as the healthcare sector. These are likely to provide investors with a more compelling risk/reward in my opinion.
