The Lendlease Group (ASX: LLC) share price has been among the best performers on the S&P/ASX 200 Index (ASX: XJO) on Thursday.
In afternoon trade the international property and infrastructure company’s shares are up over 6% to $12.99.
Why is the Lendlease share price jumping higher today?
Investors have been buying Lendlease’s shares on Thursday after analysts at Goldman Sachs retained their conviction buy rating on them.
Although the broker acknowledges that its FY 2020 net profit after tax is going to fall well short of consensus expectations, it believes it is worth sticking with the company.
Its analysts expect the company’s profits to rebound strongly in FY 2021 and notes that its shares were changing hands at just 10.6x FY 2021 earnings prior to today’s gains.
In light of this, it has put a $16.55 price target on Lendlease’s shares, which implies further upside of 27% over the next 12 months.
Commenting on the new financial year, Goldman said: “LLC has executed agreements to sell a 25% stake in the first tower of One Sydney Harbour to Mitsubishi Estate, locking in a A$100m post-tax gain for FY21 and reducing its future funding requirements for the A$2bn project. The Group also confirmed that PSP Investments has signed on as LLC’s partner for the A$4bn Milano Santa Giulia project.”
“More broadly, management noted continued strong demand from capital partners for new opportunities and highlighted Melbourne Quarter (Commercial), the Google Bay Area project, 30 Van Ness (San Francisco), International Quarter London, Silvertown Quays and Milan Innovation District as likely drivers of near-term development origination profits,” it added.
The broker is also pleased to see that the exit of its Engineering business is on track to complete in the near future.
Its analysts said: “Management confirmed again today that LLC expects the sale of the Engineering business to complete early this financial year. In our view, LLC’s decision to bring all remaining estimated exit costs to account in FY20 increase the likelihood that completion of the sale is imminent.”
Should you invest?
I agree with Goldman Sachs on Lendlease and see a lot of value in its shares. Especially, now the bad news is out of the way.
Furthermore, I think it could be top option if you’re an income investor. Goldman Sachs estimates that Lendlease’s shares currently offer a FY 2021 dividend yield of 4.4%.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.
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