It isn't just growth shares that have the potential to deliver big returns.
Even boring industrials shares can sometimes outperform the market.
And one ASX 200 stock that Macquarie Group Ltd (ASX: MQG) thinks could do this is Aurizon Holdings Ltd (ASX: AZJ).
It is Australia's largest rail freight operator, delivering more than 250 million tonnes of commodities to the world.
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What is Macquarie saying about this ASX 200 stock?
Macquarie highlights that Aurizon expects to report its lowest profit in over a decade due to a combination of factors. It said:
FY25 uNPAT is the lowest since 2013. CQCC coal volumes did not rebound, customers failed and new business took longer to develop. Investors have worn this pain.
However, the broker feels that downside risks are limited and is expecting this to be the cyclical low, potentially making now a great time to buy. It adds:
Downside risk from here is limited. Coal volumes have been flat for 5 years, with NSW likely to stay at these levels, but there remains 10-20mt of latent value for QLD, which adds to the network but also coal leverage. Bulk customer failures and closures have occurred; thus, the BHP win will add to growth, along with reduced losses in containerised freight.
Good value
In light of the above, Macquarie feels that the ASX 200 stock is being undervalued by the market and deserves to re-rate to higher multiples. It explains:
AZJ's regulated business, we believe, can comfortably justify a RAB multiple of 1x, i.e., 9x FY26 EBITDA (compared to APA's 11.3x), which leaves the residual above-rail business at ~0.53x FY26 book value, 5.6x EV/EBITDA, and 15.2x PE. The growth in above-rail should emerge with the cost reduction program, recovery of coal volumes, and lower containerised freight losses, with the FY27 PE of above-rail falling to 12.7x.
As a result, this morning the broker has upgraded the ASX 200 stock to an outperform rating with a $3.39 price target. Based on its current share price of $3.00, this implies potential upside of 13% for investors over the next 12 months.
In addition, Macquarie is forecasting dividends per share of 15.2 cents in FY 2025 and then 20.5 cents in FY 2026. This equates to dividend yields of 5% and 6.8%, respectively. This boosts the total potential return to approximately 18%.
Commenting on its outperform recommendation for the ASX 200 stock, Macquarie said:
OP (prev N). FY25 is peak pain with poor coal volumes and failing contracts. The former will bounce back. Above rails contract wins and with cost reductions creates the platform for earnings to recover. Cash yield of 11%, supports both the dividend and share buybacks.
