Metcash extends rally as analysts forecast rebound in hardware sales
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The news: Metcash shares rallied in early trading, extending gains from Monday following its steady first-half profit announcement.
The numbers: Metcash's share price was up 6.74% to $3.40 by 11:35am AEDT, following a 2.24% increase on Monday.
The context: The wholesaler reported that its increases in food and liquor earnings were offset by weaker trading activity in the hardware segment.
Citi analysts upgraded Metcash to ‘buy’ from ‘neutral’ and increased its price target 30 cents to $3.70 due to the improved hardware outlook. The analysts expect the hardware sector to look much better in six months and forecast around a 9% hardware EBIT growth in FY26.
“Earnings have likely bottomed in hardware. Combined with a more resilient earnings outlook for food and reasonable valuation (trading at a ~40% discount to market on a 2yr forward PE rel), we upgrade to buy,” Citi said.
Morningstar analysts attributed the company's poor hardware earnings to cyclical weakness in construction activity. However, they forecast that its hardware sales “will rebound strongly in fiscal 2026, growing by 10%”.
The research house said Metcash’s shares were undervalued and that the market was factoring in a more prolonged housing downturn or a structure decline in the company’s shares. It kept its fair value estimate at $4.
“We forecast Metcash's food and hardware sales to grow in line with their respective sectors. In fiscal 2026, we expect strong sales to underpin a recovery in hardware EBIT margins to long-term levels of 8.5%, measured as a percentage of noncharge through sales,” Morningstar said.
Jarden lowered its price target by 20 cents to $4.10 but kept its ‘overweight’ rating on the stock.
Jarden said that while the market continued to value Metcash as a "structurally challenged food wholesaler” they expected this to change as earnings from food continued to improve and the leverage through a cyclical upswing in hardware into 2026.
“The key risk we see to this view is that food share loss accelerates faster (trading update does not suggest this) or hardware earnings fall further (vs. expectations), which we see as unlikely with the cycle nearing, or at, a bottom in our view,” Jarden analysts said.
Macquarie analysts lowered their price target on the company by 15 cents to $3.30 but kept their ‘neutral’ rating on the stock. They said its underlying NPAT was marginally ahead of their expectations and at the upper end of the guidance range.
Contrary to Morningstar and Jarden, Macquarie said it saw limited evidence of an upcoming recovery in housing construction.
“Further, we note that indicators such as construction insolvencies and housing approvals/commencements continue to point to a soft housing market,” Macquarie said.
The sources: Morningstar research, Jarden research, Macquarie research, Citi research
