Xero (ASX:XRO) share price higher on bullish broker note

This leading broker is feeling bullish about Xero…
The post Xero (ASX:XRO) share price higher on bullish broker note appeared first on The Motley Fool Australia. –

The Xero Limited (ASX: XRO) share price is pushing higher on Friday morning.

At the time of writing, the cloud business and accounting platform provider’s shares are up 2% to $137.25.

Why is the Xero share price pushing higher?

The catalyst for the rise in the Xero share price on Friday appears to have been the release of a bullish broker note out of Goldman Sachs which has offset weakness in the tech sector.

In respect to the broker note, this morning Goldman Sachs retained its buy rating and lifted its price target on the company’s shares by 9.3% to $165.00.

Based on the current Xero share price, this implies potential upside of 20% over the next 12 months.

What did Goldman Sachs say?

Goldman notes that Xero is planning to increase its prices in the ANZ and UK markets from September of this year.

It commented: “We see this as a strong positive for Xero in addressing previous concerns on value monetisation, and see limited risk for increased churn, noting (1) it’s consistent with broader industry pricing, and (2) XRO has successfully passed through similarly targeted price rises in Sep-18/Mar-21, with limited churn impacts.”

In light of this plan, Goldman now expects Xero’s revenue to grow 33% in FY 2022, compared to 28% previously. The knock-on effect of this is an increase to the broker’s operating earnings estimates for Xero for the next three years.

What else?

Also giving the Xero share price a boost is Goldman’s comments on its performance in the UK. The broker notes that the company’s UK operations are going from strength to strength and could soon be its number one market.

Goldman commented: “We also consider recent data points which highlight: (1) the UK is closing in as XRO’s #1 market for app downloads (June 1% below Aus); (2) Planday has seen a meaningful uptick in traction in the UK/Western Europe post acquisition, with +66% sequential growth in 1Q22; and (3) Xero appears to be increasing its hiring (LinkedIn jobs +40% vs. April).”

“We revise our FY22-FY24 EBITDA by +3 to 9% driven by ARPU upgrades in ANZ and the UK; offset by increased R&D/SG&A spend. Our 12m TP increases by +9% to A$165/share,” it concluded.

Today’s gain means the Xero share price is now up an impressive 53% since this time last year.

The post Xero (ASX:XRO) share price higher on bullish broker note appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Xero. The Motley Fool Australia owns shares of and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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