The market may be a sea of red on Wednesday, but that hasn't stopped the Metcash Limited (ASX: MTS) share price from charging higher.
At the time of writing the wholesale distribution and marketing company's shares are up 3% to $2.93.
Why is the Metcash share price charging higher?
Today's gain appears to be attributable to a broker note out of Goldman Sachs this morning.
According to the note, the broker has upgraded Metcash's shares to a buy rating with a $3.07 price target. This price target implies potential upside of a further 5% excluding dividends or around 9.5% including them.
Goldman made the move largely on evidence of improved sales momentum in the Food segment and positive channel check feedback on its execution.
Its analysts explained: "Our channel check feedback has been increasingly positive on MTS' execution recently. We view the improving momentum in the food segment, noted during the 1Q20 trading update providing some confirmation of this trend."
Another couple of positives is the emergence of packaged food inflation, which was reported by both Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW) recently, and the improving trends in the housing market.
Goldman said: "We are also seeing greater evidence of the emergence of packaged food inflation, as acknowledged by Woolworths and Coles during their FY19 results. In the short term, MTS' hardware segment continues to be impacted by the housing cycle downturn, but the stronger-than-expected rebound in housing prices makes us more confident in a recovery beyond FY20. We upgrade MTS to a Buy rating."
Should you invest?
Whilst I would still choose Coles ahead of Metcash, I think Goldman makes some great points and it could be worth considering an investment. Especially with its shares expected to provide a dividend yield of ~4.6% in FY 2020. This is a very attractive yield in this low interest rate environment.
