Top broker rates Xero share price a buy with 20% upside

A young couple sits at their kitchen table looking at documents with a laptop open in front of them while they consider buying at the current Xero share priceA young couple sits at their kitchen table looking at documents with a laptop open in front of them while they consider buying at the current Xero share price

The Xero Limited (ASX: XRO) share price has had a very volatile 2022 so far. In recent weeks, it has been rising and top broker Citi has a positive outlook for the company’s ongoing growth.

Xero is a large cloud accounting technology business. It has built a global subscriber base, with a particularly large presence in Australia, the United Kingdom, and New Zealand.

At the time of writing, the Xero share price is down 39% in 2022. That compares to a 10% fall for the S&P/ASX 200 Index (ASX: XJO). However, since the beginning of July, Xero shares have gone up by 16%.

There has been a lot of investor attention on inflation and what this means for central bank interest rates. In theory, higher interest rates are meant to lead to lower asset values.

The ASX and other share markets are meant to be forward-looking. In other words, investors have tried to ‘price in’ the expected changes in the economic environment. Investors have estimated where they think interest rates will go, and therefore how various ASX shares should be valued.

Some brokers are seeing opportunities in the sell-off.

Bullish Xero share price target

Citi is one of the brokers that rates Xero a buy with a share price target of $108. Based on Tuesday’s closing Xero share price of $89.18, this implies a possible rise of around 20%.

One of the main reasons for that price target is the fact that the company is increasing its prices for subscribers in the UK, Australia, and New Zealand. Not only does this imply that Xero management thinks the company’s market strength is good, but it can also lead to increased revenue.

Citi thinks that the higher subscription price will lead to a rise of close to 10% for Xero’s average revenue per user (ARPU), which could lead to the business doing better than previously predicted.

The broker also noted that Xero has been hiking its subscription prices at a faster rate than it used to.

Morgan Stanley is another broker that is optimistic about the Xero share price with a target of $148. But this rating is a bit older than Citi’s. Morgan Stanley is also optimistic about the company’s long-term future.

Xero is also focused on the long term. When the company released its FY22 results, Xero CEO Steve Vamos said:

We are committed to delivering the world’s most insightful and trusted small business platform by focusing on driving cloud accounting adoption, growing the small business platform and building for global scale and innovation.

We continue to prioritise investment in building products and growing partnerships by investing cash generated to help deliver our strategy, drive long-term growth and meet customer needs.

The post Top broker rates Xero share price a buy with 20% upside appeared first on The Motley Fool Australia.

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More reading

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Tristan Harrison 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 Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia

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