Buy this ASX 200 stock for an 11% gain and 4%+ dividend yield

Bell Potter is bullish about this stock. But why?

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If you are looking for a combination of market-beating gains and an attractive dividend yield, then it could be worth considering the ASX 200 stock in this article.

That's because analysts at Bell Potter believe this stock is undervalued at current levels and could deliver strong returns for investors over the next 12 months.

Which ASX 200 stock?

The stock in question is agribusiness company Elders Ltd (ASX: ELD).

Bell Potter notes that its shares have underperformed recently due to doubts over its ability to hit its guidance. The broker appears to believe this is unwarranted and that Elders can deliver on expectations. It said:

The ELD share price has stagnated following the release of the 1H24 results where FY24e EBIT guidance of $120-140m was reiterated, implying 2H24e EBIT of $82- 102m (vs. $88.0m in 2H23 and $38.5m 1H24). In aggregate we would see the combination of acquisitions, business investment and stronger YOY trends in livestock as generally supportive of our FY24e forecasts and the FY24e EBIT guidance range.

In light of this, its analysts have reaffirmed their buy rating and $9.30 price target on the ASX 200 stock this morning.

Based on the latest Elders share price of $8.36, this implies potential upside of 11.2% for investors between now and this time next year.

In addition, the broker is forecasting partially franked dividends of 36 cents per share in FY 2024 and then 41 cents per share in FY 2025. This equates to dividend yields of 4.3% and 4.9%, respectively, for investors.

So, if we imagine this means a 4.6% dividend yield over the next 12 months (the FY 2024 final dividend and FY 2025 interim dividend), the total potential return increases to 15.8% for investors.

If this proves accurate, a $10,000 investment into this ASX 200 stock today could turn into $11,580.

What else did the broker say?

Bell Potter highlights that Elders' shares are trading at an attractive discount to historical average multiples at a time when its earnings growth profile is starting to recover. It concludes:

Our Buy rating is unchanged. At a high level we see ELD trading at 7.7-7.9x ThroughThe-Cycle (TTC) EBITDA, which we estimate at $270-280m reflecting YTD business investment ($68m in 1H24 + $51m on Knight Frank TAS), a discount to its historical average of 8.5x. Improving livestock turnover, the benefits of recent business investment and a stabilisation in agricultural input prices in our view support a recovering earnings growth profile in 2H24e-1H25e.

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 Elders. 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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