This broker thinks the Metcash Limited share price could continue to soar

Shares of Metcash Limited (ASX: MTS) have soared 5.5% today after Credit Suisse upgraded its price target on the stock.

According to Dow Jones Newswires, Credit Suisse has upgraded its price target on Metcash by 51% to $2.25. That represents a 12.5% improvement on today’s share price of $2 with the shares already sitting 108% higher since September 2015 when they traded for as little as 96 cents.

Metcash, which is the wholesale distributor for IGA stores around Australia, has struggled in recent years as a result of intense competition from the likes of Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES), which owns Coles. Meanwhile, international discount retailer Aldi also poses a huge threat as customers increasingly turn to the stores that can offer them the cheapest prices.

While there is still more work that needs to be done however, it appears investors are becoming more confident in Metcash’s ability to remain relevant. They have taken steps to simplify the business, including the divestment of its automotive division to Burson Group Ltd (ASX: BAP), while they are also investing in prices in order to become more competitive.

There has also been talk that Metcash could be a suitor for Woolworths’ Masters Home Improvement business. The Australian Financial Review reported that Metcash, which already owns Mitre 10 had made an indicative bid for the business earlier in the month.

Metcash would need to raise equity for the purchase but a number of major investors had indicated they would support the move.

Based on the headwinds that are currently facing Metcash, it is still too early to make a call on the business but it will be interesting to see how this situation plays out.

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Motley Fool contributor Ryan Newman owns shares of Burson. The Motley Fool Australia owns shares of Burson. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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