Is the party over for the Endeavour (ASX:EDV) share price?

Could the Endeavour share price be about to lose its fizz?

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The Endeavour Group Ltd (ASX: EDV) share price has risen by around 10% over the last four months. But is the company about to lose some of its fizz?

If readers haven’t heard of Endeavour before, it’s a business that was divested out of Woolworths Group Ltd (ASX: WOW).

The company owns several brands of alcohol and drinks businesses including Dan Murphy’s, BWS, Jimmy Brings, Cellarmasters, Langton’s, Pinnacle Drinks and Shorty’s Liquor.

Endeavour Group also has a hotels business, it’s the largest on-premise venue operator and currently manages a portfolio of more than 330 distinct licensed venues in capital cities and urban and regional centres.

Analysts aren’t bullish about the Endeavour share price

Whilst the business has been gaining in recent times, some analysts think the company has run too far.

Credit Suisse currently has a sell/underperform rating on the business with a price target of $6.19 – that’s more than 10% lower than where it is now.

The broker thinks that Endeavour is going to see growth of alcohol sales and a recovery for hotel revenue.

Credit Suisse thinks that Endeavour Group’s expenses will continue to be higher than normal.

Another broker – Morgans – thinks Endeavour is a hold with a price target of $6.95. Morgans also referenced the FY22 first quarter numbers to come to its opinion about the business which also includes expectations of a stronger performance from its hotel business and lockdowns seemingly much less likely to happen.

FY22 first quarter update

Let’s look at the first quarter numbers that the brokers are referring to. For the 14 weeks from 28 June 2021 to 3 October 2021, total sales fell by 1.2% to $2.94 billion.

There was a mixed performance between its two divisions. The retail sales were flat, falling by just 0.2% to $2.65 billion. But the hotels division, suffering from lockdowns in major markets, saw sales drop by 9.9% to $282 million. Nationally, around 40% of hotels were closed across the quarter and various trading restrictions were in place across the country.

Sales declines can obviously impact an investor’s thoughts about the Endeavour share price.

Of particular note, the online sales of the retail segment saw growth of 34.4% year on year. This saw the online penetration increased from 8.6% in FY21 to 11.5% in FY22. Endeavour acknowledged that a portion of this growth is due to the shift to at-home consumption because of venue closures. But the online penetration also grew outside of NSW and Victoria.

With the hotels business, Endeavour is thinking about the longer-term by investing in building and improving its hotels business. In the quarter, it acquired the Terrey Hills Tavern in NSW and The Manly Hotel in Queensland. It also carried out a renewal of the Sunnybank Hotel and has continued to implement digital ordering and payment technology across its hotels.

At the end of the quarter, its portfolio consisted of 336 hotels and five managed clubs.

The company said with its quarterly update:

Looking beyond the immediate challenges, the group is well positioned for growth, with a diversified portfolio of quality hotels, strong retail brands and digital assets, supported by a focused and resilient team.

Endeavour share price valuation

Using Credit Suisse’s estimate for FY22, Endeavour shares are valued at 28x FY22’s estimated earnings and 24x FY23’s estimated earnings.

Motley Fool contributor Tristan Harrison 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 no position in any of the stocks mentioned. 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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