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Super Retail Group share price rises on broker upgrade

Re-emerging trade tension between the US and China is weighing on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index but the risk-off mood hasn’t stopped investors from bidding up the Super Retail Group Ltd (ASX: SUL) share price today.

The Super Retail share price jumped 0.6% to a one-month high of $7.14 in morning trade when the ASX 200 dipped 0.2%.

The automotive and outdoor accessories retailer isn’t the only one revving up as the Wesfarmers Ltd (ASX: WES) share price, Harvey Norman Holdings Limited (ASX: HVN) share price and Premier Investments Limited (ASX: PMV) have also found support at the time of writing.

Valuation call

However, interest in Super Retail may have gotten an extra kick after Credit Suisse upgraded its recommendation on the stock to “outperform” from “neutral”.

“One wonders whether the outlook can be that bad at SUL to warrant its 10x consensus FY19 EPS [earnings per share] pricing,” said the broker.

“It is a valuation call made fully cognizant of near term and longer-term structural risks to earnings. We believe that these risks are more than adequately reflected in SUL’s share price.”

New CEO to turn sentiment

Yesterday’s appointment of a new chief executive, Anthony Heraghty, is also a “circuit breaker” to the negative sentiment that’s clouded over the stock, added Credit Suisse.

Other commentators noted that the lack of another profit downgrade in Mr Heraghty’s appointment announcement is a good sign.

Traditional retailers are facing increasing online competition, including pressure from Amazon.com, while the fall in house prices is causing consumers to become more conservative in their spending.

But there are a number of things going in Super Retail’s favour that could help the stock outperform in 2019.

Other positive factors

“A high private label share, the absence of a clear brand leader, supportive physical product characteristics (big and bulky, requirement for fit) and infrequent purchasing (consumer uncertainty) appear to provide relatively strong structural support to the earnings of Supercheap Auto and, to an extent, BCF and Macpac,” said Credit Suisse.

“Sports we rate as being having lower structural support to earnings, despite its relatively high profit margin currently.”

While Credit Suisse has turned bullish on the stock, it did cut its price target to $7.75 from $8.39 a share to reflect slower sales growth through to 2Q19.

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Motley Fool contributor Brendon Lau owns shares of Premier Investments Limited. The Motley Fool Australia owns shares of and has recommended Premier Investments Limited and Wesfarmers Limited. The Motley Fool Australia owns shares of Super Retail Group 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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