One of the best performers on the local market in morning trade has been the InvoCare Limited (ASX: IVC) share price.
The funerals company's shares were up as much as 5.5% at one stage but have faded slightly and sit 4.5% higher at $12.38 at the time of writing.
What happened?
With no news out of the company, today's gain is likely to be attributable to a broker note out of Citi.
According to the note, the broker has upgraded InvoCare's shares from a sell rating to a buy rating with an improved price target of $14.00.
This price target implies potential upside of over 13% for its shares over the next 12 months.
Why is Citi bullish on the funerals company?
Although the broker has been bearish on the company this year, it has had a change of heart and appears confident that its Protect and Growth strategy can deliver on its goals.
Protect and Growth is a $200 million capital expenditure plan which aims to deliver sustainable double digit EPS growth. To achieve this, the plan incorporates both defensive spend to protect existing market position and growth capex to drive market share increases.
In addition to being positive on Protect and Growth, the broker believes that InvoCare's current valuation is too low.
Based on the broker's earnings per share forecasts of 55.8 cents in FY 2018 and 59.1 cents in FY 2019, InvoCare's shares are changing hands at 22x full-year earnings and 21x FY 2019 earnings.
These forecasts are notably higher than what the rest of the market is predicting and is expected to be driven by cost savings, an expanding presence in rural areas, and stronger case growth.
Should you invest?
While Citi could prove to be spot on here, I think investors would be better off waiting until the release of its full-year results to see how the Protect and Growth strategy is tracking.
Especially with short interest rising fast. At the start of the week, data from ASIC revealed that around 11% of its shares were held short. This put it on the verge of entering the top ten of Australia's most shorted shares.
Instead, I would suggest investors consider fellow defensive shares such as Bingo Industries Ltd (ASX: BIN) and Sydney Airport Holdings Pty Ltd (ASX:SYD).
