Hills Holdings's share price still has room to make significant gains over the next 12 months despite surging 150% since last October, according to CIMB Securities.
The broker increased its target price on the stock by 22 cents to $2.10, at the upper end of consensus forecasts, and retained its "outperform" rating after applauding Hills Holdings' acquisitions and divestments announced last week.
CIMB labelled Hills' acquisition of two healthcare companies as "strategically sound", estimating them to have no impact on earnings per share in 2013-14 and be accretive by 5% in 2014-15.
"Both businesses are market leaders, barriers to entry are substantial, there are synergies between the two franchises and the long term demand dynamics are favourable," CIMB says.
While the company didn't disclose how much it sold its steel business LW Gemmell for, its divestment should significantly reduce Hills' corporate costs.
CIMB also thinks the turnaround in Hills core businesses has some way to go and that the company's strong net cash position allows for a range of more business transformation opportunities.
Further, it currently trades at a discount to the wider market even though it has "a host of favourable dynamics to the investment case".
Hills Holdings is down 0.5% to $1.93 at 1114 AEST, above 12-month consensus target price for $1.86.