The Adairs Ltd (ASX: ADH) share price has continued its slide and hit a new two-year low this afternoon.
The furniture and homewares retailer's shares are currently down almost 4% to $1.98.
This means the Adairs share price is now down 20% in the space of a month.
Is the Adairs share price weakness a buying opportunity?
While it is impossible to say when the company's shares will finally reach a bottom, one leading broker is likely to see the recent weakness as a buying opportunity.
A note out of Morgans reveals that its analysts have an add rating and $3.50 price target on the company's shares.
Based on the current Adairs share price, this implies potential upside of over 75% for investors over the next 12 months.
But it gets better. At present, Morgans is forecasting fully franked dividends of 19 cents in FY 2022 and 26 cents in FY 2023. This implies yields of 9.6% and 13.1%, respectively, over the two financial years.
What is the broker saying about Adairs?
According to the note, Morgans acknowledges that Adairs' first half performance was impact by COVID disruptions.
However, it expects things to improve in the second half and remains positive on the company's outlook. This is due to its Focus on Furniture acquisition, the Mocka business' omni-channel strategy, and the new national distribution centre (NDC).
It said:
In FY23, we expect Focus to have bedded down and to have started a strategy of improving store economics while expanding its footprint. We expect the NDC to be up and running and delivering efficiencies. We expect Mocka to be making its first steps towards an omni-channel strategy.
These factors underpin an expectation of positive earnings growth in FY23 and FY24, which we do not think are reflected in the multiple.
Though, it is worth noting that the broker concedes that there are risks to its estimates. These risks include a faster-than-expected downturn in consumer spending on furniture and homewares and the failure to achieve the rollout of Focus stores. Something to consider given rising inflation and interest rates.
