Super Retail Group Ltd (ASX: SUL) shares have been strong performers this week.
Investors have been scrambling to buy the retailer's shares thanks to the release of a strong trading update.
That update revealed that Super Retail expects to report an 11% increase in like for like sales during the first half, taking its revenue to $1.96 billion. This is expected to underpin normalised profit before tax of $212 million and $218 million, which will mean a big improvement in its margins despite inflationary pressures hitting many retailers.
Is it too late to buy Super Retail shares?
The good news is that a couple of leading brokers believe Super Retail shares can keep rising from here.
According to a note out of Goldman Sachs, its analysts have reiterated their buy rating with an improved price target of $14.20.
Based on where its shares are currently trading, this implies potential upside of 16%. Goldman commented:
SUL is our preferred pick in discretionary apparel/footwear space given outdoor/functional category resilience as well as the company's focus on driving consumer experience via loyalty (~70% of sales) and unique omni-channel experience. Our valuation methodology and multiples are unchanged. SUL trades at 12mths fwd P/E of 13.2x vs our new TP implied P/E of 15.2x. Reiterate Buy.
Who else is bullish?
Over at Morgans, its analysts also responded positively to Super Retail's update by retaining their add rating and increasing their price target to $14.00.
This suggests that Super Retail shares could rise approximately 15% from current levels.
While the broker suspects that this could be as good as it gets for the company, it remains positive due to its attractive valuation. Morgans explained:
Is this as good as it gets for SUL? We expect LFL sales to turn negative from this point (including in the month of January) and we continue to see next year (FY24) as a down year both in terms of sales and margins. We are keeping SUL on an ADD rating, however, as multiples remain attractive and to reflect the possibility of further positive earnings surprises and maybe even capital management by way of a special dividend. Our target price increases from $13 to $14.
Finally, both brokers are expecting a fully franked dividend yield of approximately 5.1% in FY 2023, making the total potential returns even sweeter.
