The Aurizon Holdings Ltd (ASX: AZJ) share price has been a disappointing performer so far this year.
Since the start of the year, the rail freight operator's shares have fallen 0.5%.
This compares unfavourably to an 8.5% gain by the S&P/ASX 200 Index (ASX: XJO) over the same period.
Where next for the Aurizon share price?
The good news is that one leading broker believes the Aurizon share price could be heading higher from here.
According to a note out of Morgans from last month, the broker has upgraded the company's shares to an add rating with an improved price target of $4.14.
Based on the current Aurizon share price of $3.90, this implies potential upside of 6% over the next 12 months before dividends.
In addition, Morgans is forecasting a 28 cents per share dividend in FY 2022. Including this, the potential total return stretches to 13%.
What did the broker say?
Morgans noted that it was hard to ignore the potential returns on offer based on the Aurizon share price at the time.
It commented: "We upgrade to ADD, given improved return potential at current prices. This includes c.7% dividend yield and c.9% upside [at the time] to our revised target price of $4.14."
The broker also likes Aurizon due to its defensive qualities and strong capital position.
Morgans said: "AZJ's revenue protections and the essential and long-dated nature of its assets make its earnings less correlated with the business cycle, providing a defensive element to a portfolio. Also, its strong cashflows and debt capacity give it flexibility to pursue growth investment and/or undertake capital management initiatives."
And while its analysts acknowledge that there are ESG and sustainability concerns, it "would expect AZJ's cash yield (7.5%) and cheap trading multiples (7x EV/EBITDA, 13x PER) to attract value investors tolerant [of this]."
