Why Goldman Sachs expects market-beating returns from Super Retail shares

Goldman Sachs thinks this retail share could offer big returns for investors.

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Super Retail Group Ltd (ASX: SUL) shares could be a great option for investors right now.

That's the view of analysts at Goldman Sachs, which believe the ASX retail giant is undervalued at current levels.

What is the broker saying about Super Retail shares?

Last month, Goldman reiterated its buy rating and $17.80 price target on the company's shares.

So, with Super Retail shares currently changing hands for $15.69, this implies potential upside of 13.5% for investors over the next 12 months.

But the returns won't stop there. Goldman is forecasting fully franked dividends per share of 67 cents in FY 2024 and then 73 cents in FY 2025.

This represents dividend yields of 4.3% and 4.65%, respectively, which boosts the total potential 12-month return to approximately 18%.

Why is the broker bullish?

Goldman's bullish view is largely built on its belief that Super Retail is better placed than most in the current environment thanks to the loyalty of its customers.

In addition, the broker highlights that Super Retail shares are changing hands on multiples that are lower than long-term averages. It explains:

SUL is an Australian domestic retailer with 4 divisions – Super cheap Auto, Rebel Sport, BCF, and Macpac. We believe SUL will display resilience in a softer economic environment that is built upon its competitive advantage of high loyalty (~11.0m active members accounting for >75% of sales) and this will be further bolstered as the company launches the Rebel loyalty program and continues to build personalisation capabilities. Hence, we are Buy-rated on SUL. SUL is trading below its long run PE valuation average.

All in all, this could make Super Retail worth considering if you're looking for exposure to the retail sector for your portfolio or want some new additions for an income portfolio.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has positions in and has recommended Super Retail Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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