The Aurizon Holdings Ltd (ASX: AZJ) share price has been out of form in 2021.
Since the start of the year, the rail freight operator's shares have fallen 11%.
Can the Aurizon share price bounce back and hit $3.70 by Christmas?
One leading broker that sees scope for the Aurizon share price to be trading in or around the $3.70 level by Christmas is Morgans.
This morning the broker retained its add rating but cut its price target on the company's shares to $3.73. This price target cut was in response to management reducing its dividend payout ratio to ~70% to support credit metrics for the next couple of years.
Based on the current Aurizon share price of $3.46, this implies potential upside of almost 8% for its shares.
In addition, the broker is now forecasting a 20 cents per share dividend in FY 2022. If we add this into the equation, the total potential return increases to ~14%.
What did the broker say?
Last month the broker upgraded its recommendation on the Aurizon share price to an add rating on valuation and yield grounds. It feels this should be enough to offset ESG sustainability concerns for value investors.
It commented: "Following recent share price weakness, we upgrade to ADD. We would expect AZJ's cash yield and cheap trading multiples to attract value investors tolerant of AZJ's ESG and sustainability concerns."
The broker also likes the company due to its defensive qualities.
Its analysts explained: "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."
