ARB (ASX:ARB) share price charges 6% higher on broker upgrade

About Latest Posts James MickleboroJames Mickleboro has been a Motley Fool contributor since late 2015. After studying economics at university …

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The ARB Corporation Limited (ASX: ARB) share price is finishing the week in a very positive fashion.

In afternoon trade, the 4×4 parts manufacturer's shares are up 6% to $50.68.

Why is the ARB share price charging higher?

The catalyst for the rise in the ARB share price today appears to have been a broker note out of Citi this morning.

That note was in response to the company's annual general meeting update on Thursday which revealed that FY 2022 has started positively.

The company advised: "Pandemic induced restrictions during the first quarter of FY2022 impacted ARB in a number of its markets, including significant lockdowns in Victoria and New South Wales. Despite these restrictions, trading performance remained strong during the quarter with pleasing sales and profit growth."

"ARB's order book remains strong, both domestically and internationally, and the Company is continuing with its product development work, store development program in Australia and the expansion of its manufacturing capability," it added.

What did Citi say?

In response to the update, the team at Citi upgraded the company's shares to a buy rating with a $55.45 price target.

Based on the current ARB share price, this implies potential upside of 9.4% for investors even after today's strong gain.

Citi commented: "The 1Q22 trading update revealed better profit momentum despite lockdowns in NSW and Victoria. We upgrade ARB to Buy (from Neutral) following the -11% share price decline since its August 2021 peak as we see potential for sales and profit to accelerate over 2Q22e with NSW and Victoria reopening."

"ARB also has significant medium-term growth drivers including i) its partnership with Ford, ii) distribution gain opportunities in the US, iii) opportunities to expand in Europe and iv) expansion of its Thailand manufacturing facility," it added.

The ARB share price may now be up 63% in 2021, but Citi appears to believe it could run even higher.

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 has recommended ARB Corporation 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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