S&P/ASX 200 Index (ASX: XJO) retail share Premier Investments Ltd (ASX: PMV) has been tipped to outperform among ASX retail stocks in 2023 by broker Morgan Stanley.
The specialty fashion retail operator is active in Australia, New Zealand, Asia, and Europe. It has a current market cap of $4.4 billion and pays a trailing dividend yield of 3.6%, fully franked.
Why Morgan Stanley upgraded the ASX 200 retail share
Morgan Stanley analysts, led by equity analyst Joseph Michael, say Aussie retailers and their investors should prepare for a challenging year ahead.
According to Michael (courtesy of The Australian):
Retail demand and margins surprised on the upside in 2022. Looking into 2023, we expect the impact of these headwinds to intensify as savings buffers fade, the impact of rising rates flows through and reopening tailwinds dissipate…
In the current challenging backdrop we have a preference for retailers with: i) global expansion optionality; ii) margin levers; iii) track record of beating market expectations; iv) strong balance sheets; and v) high insider ownership.
Morgan Stanley said that retail share Premier Investments ticks those boxes.
The broker's analysts noted:
We are attracted to Premier's global expansion opportunity (via Smiggle), its long track record of beating market expectations (on apparel brand execution in the face of higher offshore competition, rent negotiations with landlords and scaling Smiggle and Peter Alexander) and capital management optionality (we see scope for more dividends/buybacks or highly accretive M&A).
Not that Premier won't be impacted by stubbornly high inflation, likely further interest rate hikes from the RBA, and diminishing consumer savings. But the strength of the ASX 200 retail share's balance sheet and management should see it outperform.
"It is best positioned among retailers in our coverage to navigate the tough conditions with a strong balance sheet and high-quality leadership team," Michael said.
Morgan Stanley upgraded Premier Investments to overweight. It has a price target for the company's shares of $30.50. That's 11% above the current share price of $27.51.
Premier Investments share price snapshot
As you can see in the chart below, the Premier Investments share price has gained 11% so far in 2023.
Over the past 12 months, the ASX 200 retail share is up just under 2%, having fallen sharply during the initial wave of interest rate hikes.
