The Sydney Airport Holdings Pty Ltd (ASX: SYD) share price has unsurprisingly come under a lot of pressure this year because of the pandemic.
Since hitting a 52-week high of $9.30 in December, the airport operator’s shares have shed 42% of their value.
One broker that believes this is a buying opportunity is Goldman Sachs. This morning it retained its buy rating and lifted its price target on the Sydney Airport share price to $6.16.
Why does Goldman Sachs like Sydney Airport?
The broker likes the airport operator due to its strong market position.
Goldman commented: “Sydney Airport is an unregulated monopoly asset and the primary aviation gateway to Australia, a structural position that is not going to change following the Covid-19 pandemic.”
And while it notes that trading conditions will remain tough, it believes Sydney Airport is well-placed to ride out the storm.
“In the interim, we believe the business is positioned to remain in effective ‘hibernation’ (i.e. cashflow neutral and with sufficient cash reserves to cover CY20-22 bond repayments) until such a point that aviation activity recovers,” the broker added.
Goldman Sachs also likes the flexibility the company has to return to growth in the event of a sooner than expected recovery in travel markets.
It commented: “while planning for a worst case, SYD has ensured it maintains the flexibility to pivot back to growth in the event of recovery. While CY21 capex guidance has been lowered to $100-125mn we note that this still includes some growth options, and the business unit leaders remain on the lookout for further potential high returning opportunities to leverage a recovery.”
In light of this, the broker feels Sydney Airport’s shares are undervalued at the current level.
It concluded: “Given the inherent defensiveness of its financial position, we believe the current market discount is unwarranted and maintain our Buy rating on the stock with a post raising 12-month Target Price of A$6.16/share.”
Should you invest?
I agree with Goldman Sachs on Sydney Airport and believe it could be a great long term investment options for patient investors.
I would choose it ahead of fellow travel shares Flight Centre Travel Group Ltd (ASX: FLT) and Webjet Limited (ASX: WEB).
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. 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 post Why this leading broker thinks the Sydney Airport share price is a buy appeared first on Motley Fool Australia.
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