Buy this ASX 200 share for a 20%+ return

Bell Potter thinks big returns could be coming for this stock.

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If you're looking to bolster your investment portfolio's returns, then it could be worth looking at the ASX 200 share in this article.

That's because analysts at Bell Potter believe that a total return in excess of 20% is possible over the next 12 months.

Which ASX 200 share is the broker bullish on?

The stock in question is Eagers Automotive Ltd (ASX: APE). It is an automotive retailer with a significant network of dealerships sprawling across Australia.

According to a note from this morning, the broker has reiterated its buy rating on the ASX 200 share with a slightly trimmed price target of $14.75 (from $15.20).

Based on its current share price of $12.55, this implies a potential upside of 17.5% for investors between now and this time next year.

But the returns won't stop there according to Bell Potter. It expects Eagers Automotive to pay 74 cents per share fully franked dividends in FY 2024, FY 2025, and FY 2026.

This represents 5.9% dividend yields at current prices and boosts the total 12-month return to approximately 23.5%.

To put that into context, a $20,000 investment would turn into almost $25,000 if Bell Potter is on the money with its recommendation.

What is the broker saying?

Bell Potter notes that the ASX 200 share is due to hold its annual general meeting next week. In previous years, the company has provided a trading update at the event and the broker expects this to be the case this year.

The note reveals that its analysts are expecting a relatively flat start to FY 2024 compared to the same period last year. It said:

Eagers will hold its AGM next week on Wednesday, 22nd May and as per usual we expect the company to provide a trading update for the year-to-date (ytd). We expect underlying net profit before tax for the first four months of 2024 to be roughly in line with the pcp as we see the positive of much stronger Toyota sales in Australia for the ytd (up 45% versus pcp) to be largely offset by the negatives of a lower contribution from BYD (due to the clearance of Atto 3's) and any impact from the cyber security incident in late 2023.

Nevertheless, the broker believes its shares are undervalued based on its current 11x earnings multiple and deserves to trade at 12.5x earnings. It said:

We have reduced the multiples we apply in the PE ratio and EV/EBITDA valuations from 13x and 6x to 12.5x and 5.75x and also increased the WACC we apply in the DCF from 9.0% to 9.2% given the uncertainty around the trading update and the potential for the ytd performance to be flat to slightly down. The result is a 3% decrease in our PT to $14.75 which still >15% premium to the share price so we maintain our BUY recommendation.

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 no position in any of the stocks mentioned. The Motley Fool Australia has recommended Eagers Automotive Ltd. 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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