The market hit a new record high on the first trading day of the week and two ASX shares are in the spotlight after getting upgraded by leading brokers.
The S&P/ASX 200 Index (Index:^AXJO) gained over 1% to an all-time high with most sectors trading in the black as we head into the market close.
3 drivers behind the upgrade for this ASX share
However, the Coles Group Ltd (ASX: COL) share price was among the standouts. Shares in the supermarket jumped 2.3% to $17.05 at the time of writing after Macquarie Group Ltd (ASX: MQG) upgraded it to “outperform” from “neutral”.
The upbeat view is driven by three factors. One is the normalising of consumer behaviour as the shopping local trend unwinds.
“Physical occupancy levels in Syd and Melb CBDs are improving significantly, to 68% and 45% of pre-COVID levels as of May,” said the broker.
“We note, COL supermarkets are over-indexed to shopping centres and CBDs, areas most impacted by the pandemic.”
Other factors supporting Coles share price upgrade to “buy”
Macquarie also noted that the comparable sales gap between Coles and archrival Woolworths Group Ltd (ASX: WOW) is narrowing.
Finally, a rebound in traffic bodes well for the Coles-run petrol stations and convenience stores.
“Driving in Brisbane and Sydney is tracking back towards pre-pandemic levels although Melbourne has dropped significantly following the two-week lockdown,” added Macquarie.
“An uptick in people driving as mobility restrictions ease and domestic travel ramps up, will support growth in COL’s Express business including both fuel volumes and C-store sales.”
The broker’s 12-month price target on the Coles share price is $18.20 a share.
M&A triggers upgrade for this ASX share
Meanwhile, the Regis Healthcare Ltd (ASX: REG) share price got upgraded by Morgans to “add” from “hold”.
This is largely due to the merger and acquisition (M&A) fever that’s washing over the ASX. We’ve seen high-profile takeover attempts for the Crown Resorts Ltd (ASX: CWN) share price and Tabcorp Holdings Limited (ASX: TAH) share price.
Price discovery uncovers value
“With M&A activity in the sector front and centre, we can now get a clearer idea of trading multiples,” said Morgans.
“Although the Japara take-over offer is still non-binding and a few months away from a clear decision point, it does suggest the two other listed players are trading at multiples that could provide upside for investors.”
The Japara share price is trading on an adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) multiple of around 9.4 times.
In contrast, the Regis share price is trading on an adjusted EBITDA of 8.8 times, according to Morgans.
The broker’s 12-month price target on the Regis share price is $2.23 a share.