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 blue collared shirt sits at his desk doing a single fist pump as he watches the Appen share price rise on his laptop
Broker Notes

These ASX 200 stocks could rise 30% to 40%

Analysts are tipping these shares to go to the moon. Let's find out why.

Read more »

A businessman looking at his digital tablet or strategy planning in hotel conference lobby. He is happy at achieving financial goals.
Broker Notes

Top brokers name 3 ASX shares to buy next week

Brokers gave buy ratings to these ASX shares last week. Why are they bullish?

Read more »

Man pointing at a blue rising share price graph.
Technology Shares

Up 30% in a month, this ASX 200 tech share is 'a compelling opportunity': expert

Analysts from listed investment company WAM Capital say this ASX 200 tech stock is worth watching.

Read more »

An executive in a suit smooths his hair and laughs as he looks at his laptop feeling surprised and delighted.
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 »

View of a mine site.
Broker Notes

How much upside does Macquarie tip for Deterra Royalties shares?

Deterra Royalties offers ASX investors a different way to invest in global mining.

Read more »

Woman with $50 notes in her hand thinking, symbolising dividends.
Broker Notes

Broker reveals outlook for ASX dividend shares amid volatile market

Peter Gardner from Plato Investment Management tells ASX investors where to look for dividend income this year.

Read more »

A man has a surprised and relieved expression on his face. as he raises his hands up to his face in response to the high fluctuations in the Galileo share price today
Broker Notes

Leading broker puts buy rating on Zip shares

Big returns could be on offer for investors according to its analysts.

Read more »

gaming asx share price rise represented by slot machine paying jackpot
Broker Notes

What does Macquarie expect from Aristocrat Leisure shares when it reports on 14 May?

Here's what the broker is expecting from this gaming technology company next week.

Read more »