Endeavour Group Ltd (ASX: EDV) shares have been having a tough time of late.
This has led to the drinks company's shares losing over 20% of their value since this time last year, as you can see on the chart below.
Image source: Getty Images
Why are Endeavour shares down so much?
Investors have been hitting the sell button over the last 12 months amid concerns over the impact that poker machine reforms could have on its operations.
In addition, a softer-than-expected third-quarter performance and higher finance costs appear to have disappointed the market in recent months.
Is this a buying opportunity?
The team at Goldman Sachs has taken all the above into account and continues to see significant value in Endeavour shares.
Its analysts currently have a buy rating and a $7.50 price target on them, which implies a potential upside of 22% for investors from current levels.
Sweetening the deal even further, Goldman expects dividend yields of 3.6% and 3.9% in FY 2023 and FY 2024, respectively.
Commenting on its earnings estimates, the broker said:
EPS cut -2.5% to -1.7% on higher interest rates though still ~8% EPS CAGR: Reflecting the above, we tweak FY23-25e group sales by 0.6-0.7% respectively and EBIT by +1.2%-1.3% largely due to higher than expected Hotels sales despite slightly lower 2H23 margins. Our updated forecasts imply 4.4% sales CAGR and 8.3% EPS CAGR FY22-25e.
We reduce our Hotel EV/EBIT multiple from 13x to 12x to factor in further operational volatility and potentially lower contribution from gaming operations which have higher margins, despite immediate NSW cashless gaming risk being reduced given the Labor government win in March.
As for its valuation, the broker believes Endeavour shares are attractively priced at the current level. It adds:
Our TP of A$7.50/sh […] implies FY24e P/E of ~23x [now 19.1x] vs historical average of ~24x. The stock is currently trading at ~20x P/E implying 2.4x PEG which remains attractive relative to the rest of our Consumer coverage.
