Metcash (ASX:MTS) share price hits 52-week high and could go even higher

The Metcash Limited (ASX:MTS) share price is pushing higher again and hit a 52-week high. Here’s why it could still go even higher…

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The S&P/ASX 200 Index (ASX: XJO) may be out of form on Thursday but that hasn’t stopped the Metcash Limited (ASX: MTS) share price from pushing higher.

In fact, at one stage this morning the wholesale distributor’s shares climbed to a 52-week high of $3.67.

When the Metcash share price reached that level, it was up an impressive 42% over the last 12 months.

Why is the Metcash share price at a 52-week high?

There have been a couple of catalysts for the strong gain by the Metcash share price.

One was the release of a very strong half year result in December and the other has been the reaction to its update by brokers.

In respect to its results, for the six months ended 31 October, the company reported a 12.2% increase in group revenue to $7.1 billion. Including charge-through sales, the company’s revenue rose 12.3% to $8.1 billion.

And thanks to an improvement in its margins, Metcash reported an impressive 43% lift in underlying profit after tax to $129.6 million.

Can Metcash shares go even higher?

Although the Metcash share price has just hit a 52-week high, its gains may not be over.

Two brokers that have recently rated its shares as a buy are Goldman Sachs and Credit Suisse.

Last week Goldman retained its buy rating and $3.92 price target on Metcash’s shares. It is also forecasting a 16 cents per share fully franked dividend in FY 2021.

Whereas this morning, Credit Suisse retained its outperform rating and lifted its price target to $4.08. It has pencilled in a 15.9 cents per share dividend.

Both brokers note that Metcash’s businesses are benefitting from industry tailwinds and are eagerly anticipating the company’s strategy day event next week.

In respect to the latter, Goldman commented: “MTS is hosting a strategy day on the 16th of March. We expect to hear more about progress beyond mFuture and MTS’ foray into omni-channel retailing at this stage. We expect this roadmap to potentially be a strong catalyst for MTS in the near term.”

In addition to this, while not necessarily at this event, Goldman suspects that capital management initiatives could be announced in the near future.

“MTS has a very strong balance sheet. We expect capital management to become a potential topic during the FY21 results, and potentially become a catalyst to the share price,” it explained.

More gains ahead?

Based on the average of the two brokers’ price targets, the Metcash share price could still rise a further ~11% from here. In addition, the brokers also expect a dividend yield of ~4.4% over the next 12 months.

This could make it worth considering, especially if you’re an income investors.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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