Harvey Norman (ASX:HVN) share price rises on broker upgrade

This retail giant’s shares could be good value…

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The Harvey Norman Holdings Limited (ASX: HVN) share price is pushing higher on Wednesday morning.

At the time of writing, the retail giant’s shares are up 1% to $5.02.

Why is the Harvey Norman share price rising?

The catalyst for the rise in the Harvey Norman share price appears to have been a broker note out of Goldman Sachs this morning.

According to the note, the broker has upgraded the company’s shares to a buy rating with an improved price target of $6.00.

Based on the current Harvey Norman share price, this implies potential upside of 19.5% over the next 12 months.

And with Goldman forecasting dividends per share of 36 cents in FY 2022, the potential total return increases to ~27% including dividends.

What did the broker say?

Goldman Sachs made the move on the belief that Harvey Norman is well positioned to capitalise on a stronger outlook for housing related categories such as consumer appliances and furniture.

The broker explained: “We expect the underlying growth outlook into the medium to remain ahead of the pre-pandemic averages for the home related categories. As a result of this, we expect margin execution to remain elevated for longer with EBITDA margin for FY24e expected to be at FY18 levels on a pre-AASB16 basis as the cycle eases. While this still implies FY24 EBIT being A$775mn vs. A$1087.3mn in FY21, the EBIT CAGR over FY19-24e is expected to be at +6.6%, including +7.4% for Australia.”

Goldman believes this growth rate makes the Harvey Norman share price good value based on current multiples.

Its analysts said: “Adjusted for the property valuation, HVN currently trades at a FY22e P/E of 7.1x. This compares to a long-term average of 8.7x and a peer group median of 9.6x. Even on a pre-property adjusted basis, HVN is currently trading at a relative valuation discount of -59% on an Industrials ex financials basis vs. a longer term average of -14% and a 5 year average discount of -42%.”

All in all, Goldman feels this makes Harvey Norman shares worth considering today.

Should you invest $1,000 in Harvey Norman right now?

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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 Harvey Norman Holdings Ltd. 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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