Leading broker tips NEXTDC (ASX:NXT) share price to race higher

This tech share could be heading a lot higher according to a leading broker…

| More on:
nextdc share price

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The NEXTDC Ltd (ASX: NXT) share price has been a strong performer over the last 12 months.

Since this time last year, the data centre operator's shares have rallied 22% higher.

Can the NEXTDC share price keep climbing?

One leading broker that believes the NEXTDC share price can still run a lot higher from here is Goldman Sachs.

According to a note released this morning, the broker has reiterated its conviction buy rating and put a $14.80 price target on the company's shares.

Based on the current NEXTDC share price of $11.80, this price target implies potential upside of 25% over the next 12 months.

What did Goldman say?

Goldman notes that one of NEXTDC's key competitors, Equinix, recently hosted an analyst day and highlighted the robust outlook for interconnected data centres.

Equinix advised that it expects FY 2021-2025 revenue to grow at a compound annual growth rate (CAGR) of 7% to 9%. It also estimates that its total addressable market (TAM) will grow from US$60 billion to US$80 billion by FY 2025.

This appears to support Goldman's view that NEXTDC is well-positioned to deliver strong revenue and EBITDA growth over the coming years.

Goldman commented: "We remain high-conviction on the growth profile ahead, forecasting +37MW contract wins across FY22-23E (=65% conversion of options). Combined with recent share price underperformance, this gives an attractive growth adjusted valuation. We reiterate our Buy (on CL) on NXT, the most compelling growth story in our coverage."

Anything else?

In addition to the above, the broker notes that merger and acquisitions activity is continuing in the global data centre market and this could soon include NEXTDC. Goldman suspects that the company could be interested in acquiring the Australian assets of Global Switch.

It estimates that NEXTDC would require $550 million to $900 million of equity if acquired for $1.2 billion to $1.6 billion. This would represent a 14-18x EV/EBITDA applied to calendar year 2019 EBITDA. Though, it acknowledges that the company has not confirmed whether it would be interested in such an acquisition. This might be something for investors to look out for.

Motley Fool contributor James Mickleboro owns shares of NEXTDC Limited. 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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Broker Notes

a man in a business suite throws his arms open wide above his head and raises his face with his mouth open in celebration in front of a background of an illuminated board tracking stock market movements.
Broker Notes

Analysts say these ASX shares are top buys in June

Brokers are urging investors to buy these shares. Let's find out why.

Read more »

A man in trendy clothing sits on a bench in a shopping mall looking at his phone with interest and a surprised look on his face.
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

Woman and man calculating a dividend yield.
REITs

What price target does Macquarie have on Goodman Group shares?

Goodman Group posted an interesting set of numbers in Q3. Here's Macquarie's take.

Read more »

Miner looking at a tablet.
Broker Notes

Why Macquarie expects this ASX 200 copper stock to surge 36% in a year

Macquarie forecasts some hefty gains ahead for the ASX 200 copper miner. But why?

Read more »

two women celebrating good news on phone
Broker Notes

Top broker names 3 ASX All Ords stocks with between 30% and 77% upside

These 3 stocks offer compelling potential upside.

Read more »

Woman on her phone with diagrams of tech sector related elements linking with each other.
Broker Notes

A leading fund manager is buying these ASX 200 tech shares

Let's see why the fund manager has these shares in its focus portfolio.

Read more »

A young man wearing a black and white striped t-shirt looks surprised.
Broker Notes

Broker says these ASX 200 shares can rise 40% to 80%

Bell Potter sees scope for these shares to rocket from current levels.

Read more »

A man in his 30s holds his laptop and operates it with his other hand as he has a look of pleasant surprise on his face as though he is learning something new or finding hidden value in something on the screen.
Broker Notes

How this undervalued ASX All Ords share could rocket 80% in a year

A leading fund manager expects a big turnaround for this beaten-down ASX All Ords stock.

Read more »