Why is the Adairs (ASX:ADH) share price surging 5% higher today?

This ASX share had a very strong day…

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The Adairs Ltd (ASX: ADH) share price was among the best performers on the All Ordinaries on Wednesday.

The furniture and homewares retailer’s shares rose almost 5% to $3.74.

Why did the Adairs share price storm higher?

There appear to have been a few catalysts for the strong gain by the Adairs share price on Wednesday.

One was improving investor sentiment following a strong night of trade on Wall Street after omicron concerns started to ease.

In addition, sentiment in the retail sector was given a further boost this week from the release of the Household Spending Intentions (HSI) Index for November by Commonwealth Bank of Australia (ASX: CBA). That release revealed that the index has hit its highest level since December 2019.

So, with household savings sitting at a lofty $240 billion, retailers are bracing for a strong holiday period.

Bullish broker

Also potentially giving the Adairs share price a lift was a recent broker note out of Morgans.

According to the note, Morgans was pleased with the company’s acquisition of Focus on Furniture. In response, it has retained its add rating and lifted its price target to $4.80. Based on the current Adairs share price, this implies potential upside of 28% for investors.

In addition, Morgans is forecasting a fully franked dividend of 23 cents per share in FY 2022. This equates to a dividend yield of 6.1%, bringing the total return to 34%.

Morgans commented: “It seems to us that the market sees ADH as a COVID beneficiary that is unlikely to deliver much in the way of organic growth over the next few years. Buying Focus perhaps hasn’t done anything to dispel this notion. But we think that’s unfair. Our estimates are for an EPS CAGR of 21% between FY20 and FY24F. The acquisition of Mocka and Focus play a large part in driving this, but even organically, a combination of a very strong loyalty programme, GLA growth and cost efficiencies underpin a growth story that we think is going under the radar. ADD.”

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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. owns shares of and has recommended ADAIRS FPO. The Motley Fool Australia owns shares of and has recommended ADAIRS FPO. 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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