The Harvey Norman Holdings Limited (ASX: HVN) share price has been a positive performer on Friday.
In afternoon trade the retailer's shares are up over 5.5% to $3.00.
Why is the Harvey Norman share price charging higher?
Investors have been buying Harvey Norman's shares today after it was the subject of a positive broker note out of Goldman Sachs.
According to the note, the broker has upgraded the retailer's shares to a buy rating with an improved price target of $3.85.
Even after today's solid gain, this price target implies potential upside of 28% for its shares over the next 12 months excluding dividends.
Why did Goldman Sachs upgrade Harvey Norman's shares?
The broker made the move after industry feedback suggested that sales trends are proving more resilient across the sector than expected only a matter of months ago.
In light of this, the broker has updated its forecasts for Harvey Norman to reflect these conditions in FY 2020.
And while it notes that the outlook into FY 2021 remains extremely uncertain, it feels the better than expected containment of COVID-19 in Australia is softening the downside to earnings it previously anticipated.
This led to the broker upgrading its EBIT forecasts by 3.4% and 11.4% respectively in FY 2020 and FY 2021. It now expects EBIT of $350.5 million in FY 2020 and $443.5 million in FY 2021.
Based on this, it feels that the company's shares are undervalued.
Goldman explained: "Despite the better than expected industry trends, HVN's share price has not recovered from the March sell off, substantially underperforming the market by 15.5% since a recent high on February 19th. We forecast HVN is trading at 11.7x FY21 PE (50% discount to ASX200 Industrials), despite FY21 EPS being 16% below FY19. On a property adjusted basis, we estimate HVN's retail operations are trading at 3.0x PE in FY21."
Should you invest?
While it isn't my favourite option in the retail sector, it is hard to argue against it being attractively priced.
This could make it worth considering along with the likes of Accent Group Ltd (ASX: AX1) and Premier Investments Limited (ASX: PMV).
