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Top broker tips NEXTDC shares to hit $7.70

James Mickleboro
Two IT workers in front of a data centre

The NEXTDC Ltd (ASX: NXT) share price has been a solid performer on Friday.

In morning trade the data centre operator’s shares are up over 1.5% to $6.77.

Why is the NEXTDC share price pushing higher?

Investors have been buying NEXTDC’s shares today after it was the subject of a positive broker note out of Goldman Sachs.

According to the note, Goldman Sachs has retained its buy rating and lifted the price target on its shares to $7.70.

This price target implies potential upside of ~14% over the next 12 months from its current share price.

Why is Goldman Sachs bullish on NEXTDC?

Goldman lifted its price target on NEXTDC’s shares following media reports that it had won a ~$35 million two-year data centre contract with the Bureau of Meteorology (BoM).

The broker believes this contract is in Melbourne and is estimated to be 3.5MW in size.

Based on NEXTDC’s M1 pricing of $4.39 million per MW, Goldman expects it to contribute $15 million in revenue and $11 million in EBITDA in FY 2021 when at its full run-rate. It also expects it to have a positive impact on its FY 2020 results, though it is uncertain just how much at this stage.

Its analysts believe this is a big positive for NEXTDC. Not only because of the financial impact, but also as it “addresses a key investor concern around the lack of recent contract wins, particularly in Melbourne.”

Goldman concluded: “[We] Stay Buy on NXT, given (1) We expect earnings growth to accelerate into FY21, largely underpinned by existing contracted MW in Sydney; (2) NXT is delivering an improving cash return on investment; and (3) we remain positively disposed to the secular tailwinds which will drive NXT earnings from FY22 and beyond – with our global teams forecasting aggregate cloud revenue/capex to grow +46%/+17% in CY19.”

Elsewhere on the market today, fellow tech share Nearmap Ltd (ASX: NEA) has also been given a buy rating. Morgan Stanley has an overweight rating and $4.20 price target on its shares following its AGM update.

The post Top broker tips NEXTDC shares to hit $7.70 appeared first on Motley Fool Australia.

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Motley Fool contributor James Mickleboro owns shares of NEXTDC Limited. The Motley Fool Australia owns shares of and has recommended Nearmap Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019