Top brokers just upgraded these ASX shares to “buy”

The market hit a new record high on the first trading day of the week and two ASX shares are …

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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.

Enthusiasm for acquisitions have also spilt over into the aged care space. Regis received a non-binding offer that it rejected and rival Japara Healthcare Ltd (ASX: JHC) is also being pursued.

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.

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Brendon Lau owns shares of Macquarie Group Ltd and Woolworths Group Ltd. Connect with me on Twitter @brenlau.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended COLESGROUP DEF SET, Macquarie Group Limited, and Woolworths Limited. 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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