Brokers says the Megaport share price can keep charging higher

Man drawing an upward line on a bar graph symbolising a rising share price.

Man drawing an upward line on a bar graph symbolising a rising share price.

The Megaport Ltd (ASX: MP1) share price was an exceptionally strong performer on Wednesday.

The elastic Interconnection services provider’s shares ended the day a massive 23% higher at $7.96.

Investors were bidding the Megaport share price higher following a rebound in the tech sector and the release of a strong quarterly update.

Can the Megaport share price keep rising?

The good news is that one leading broker believes the Megaport share price can still climb meaningfully from here even after yesterday’s stellar gain.

According to a note out of Goldman Sachs, its analysts have reiterated their buy rating and lifted their price target slightly to $9.60.

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

What did the broker say?

Goldman was very pleased with Megaport’s performance during the fourth quarter and notes that the “improvement in the sales cadence of core products (ex MVE) across both direct/indirect channels was the key highlight of the result.” It added:

[We] see this as a net improvement for the sales trajectory, particularly given uncertainty following recent MP1 mgmt. changes and slowing US enterprise IT spending (GS tracker). We now forecast FY23/24/25E revenue growth of +39/35/30%, with the partner channel and MVE products remaining key medium term drivers.

Another huge positive from the update was Megaport’s achievement of its first quarterly EBITDA profit. Goldman believes this de-risks funding concerns and should provide valuation support. It said:

EBITDA Breakeven de-risks funding concerns: with MP1 showing the underlying operating leverage within the business to reach EBITDA breakeven for the first time in 4Q22, which we believe is a key catalyst (noting the valuation gap between unprofitable/profitable tech). We now forecast FCF breakeven by FY24, driven primarily by operating leverage from revenue growth (assuming ongoing capex of A$30mn), noting current cash burn rate implies 13-14 quarters of funding capacity (vs. 5-6 in 3Q22).

All in all, the broker remains very positive on the Megaport share price. Particularly given “the product leadership of the company, and the rapidly growing NaaS/SD-WAN addressable markets.”

The post Brokers says the Megaport share price can keep charging higher 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. has positions in and has recommended MEGAPORT FPO. The Motley Fool Australia has recommended MEGAPORT FPO. 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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