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Key Points
- The Baby Bunting share price has fallen in recent weeks, but analysts still like the company
- Brokers such as Citi and Morgan Stanley rate it as a buy, with double digit potential upside of the share price this year
- Baby Bunting is seeing a recovery of sales, a growing profit margin, an expanding store network and more private label and exclusive products being sold
The Baby Bunting Group Ltd (ASX: BBN) share price is well-liked by a number of analysts right now.
Australia's biggest baby and toddler product retailer is seeing ongoing growth and brokers think that it could be an opportunity.
Two of the brokers that like Baby Bunting right now includes Citi and Morgan Stanley. Both of them have price targets that could see the business achieve double digit share price growth this year.
What do the brokers like about the Baby Bunting share price?
The latest look that analysts had at the business performance was the annual general meeting (AGM) a few months ago. There were a number of things that Citi and/or Morgan Stanley noted as positives.
Baby Bunting revealed that its gross profit margin continued to increase, with a rise of 120 basis points to 38.7% in the year to date (to 3 October 2021). A higher gross profit helps increase the profitability of other profit lines of the company.
The increase in the gross profit margin has been largely down to growth of private label and exclusive products, the product mix and supply chain efficiencies.
After a slow start to FY22, Baby Bunting's sales continued to strengthen, with comparable store sales only down by 1.3% in the year to date. Excluding NSW and ACT stores, comparable store sales were up 4.7%. Total sales for the year to date showed growth of 1.5%.
Online sales continue to perform strongly, with growth (including click and collect) of 37.7% for the year to date, despite cycling growth of 126% in the prior corresponding period.
Its store network continues to grow in size. In FY22 it's expecting to open between six to eight new stores in Australia, as well as two new stores in New Zealand in the second half of FY22.
Price targets on the Baby Bunting share price
Looking at how much brokers think that Baby Bunting shares could rise in 2022, one of the most positive is Morgan Stanley's price target of $6.90. That's a potential rise of more than 30% over this year.
Citi on the other hand has a price target of $6.11. It's not as high, but still implies a potential mid-teen return in share price terms.
Despite the lower price target, it's Citi that actually has the more optimistic earnings projection for FY23. On Citi's numbers, the Baby Bunting share price is valued at 19x FY23's estimated earnings. Citi's forecast means Baby Bunting shares are valued at 24x FY22's estimated earnings.
Areas of focus
Baby Bunting shares have fallen more than 10% since the start of November 2021. However, the business is investing in its new website, leveraging its new e-commerce architecture, improving its loyalty program, investing in the customer experience and increasing online fulfilment efficiency. The ASX share is hoping to have 90% of metro sales orders fulfilled in the same day.
