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Caltex Australia Limited (ASX:CTX) share price tipped to surge higher in 2019

Source: CTX presentation

The Caltex Australia Limited (ASX: CTX) share price has been a strong performer on Wednesday.

In late morning trade the fuel retailer’s shares are up 4% to $28.51.

Why are Caltex’s shares pushing higher today?

Today’s gain is likely to be partly attributable to a broker note out of Ord Minnett this morning.

That note revealed that the broker has retained its buy rating on the fuel retailer’s shares following its investor day on Tuesday.

It has, however, cut the price target on its shares a touch to $33.50 after downgrading its earnings forecasts for Caltex slightly. But this price target still implies potential upside of over 22% from its last close price, excluding dividends.

In addition to this, at its investor day the company provided guidance for the year ahead. The accompanying presentation appears to have confused some investors, leading to the company releasing an announcement this morning clarifying its guidance.

According to the release, management “confirms the $20 million negative impact in Convenience Retail earnings is forecast to result in an EBIT range of $275-295 million for Convenience Retail in 2018.”

As before, this guidance remains subject to fluctuations in market conditions for the remaining two months of the year.

This guidance appears to have gone down well with investors, especially given concerns over challenging trading conditions brought about by elevated fuel costs and the impact this is likely to have on consumer spending on discretionary items inside its fuel stations.

Should you invest?

While it isn’t necessarily a stand out pick for me, I do think that Caltex could be worth considering.

This is because of the company’s Convenience Retail segment. I believe it could be a key driver of growth in the future with management aiming to add an additional $120 million to $150 million profit uplift in the coming years.

Overall, this could make it a better option to blue chips such as Woolworths Group Ltd (ASX: WOW) and Wesfarmers Ltd (ASX: WES).

As well as Caltex, these blue chip shares have been tipped as buys in FY 2019.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. 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 Scott Phillips.

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