Xero share price can still rise almost 30% from here: Goldman Sachs

a man looks down at his phone with a look of happy surprise on his face as though he is thrilled with good news.

a man looks down at his phone with a look of happy surprise on his face as though he is thrilled with good news.The Xero Limited (ASX: XRO) share price was in fine form on Thursday.

The cloud accounting platform provider’s shares surged 9% higher to end the day at $102.49.

Investors were scrambling to buy Xero’s shares after its full-year results impressed the market.

In case you missed it, for the 12 months ended 31 March, Xero posted a 28% increase in operating revenue to NZ$1.4 billion, a 26% lift in annualised monthly recurring revenue to NZ$1.55 billion, and a 45% jump in adjusted EBITDA to NZ$301.7 million.

Where next for the Xero share price?

The good news for investors is that one leading broker believes the Xero share price can keep rising from current levels.

According to a note out of Goldman Sachs, its analysts have responded to the result by reiterating their buy rating with an improved price target of $130.00.

Based on where they are trading today, this suggests that the company’s shares could rise by another 27% over the next 12 months.

What did the broker say?

Goldman Sachs believes the Xero result revealed a “clean, high quality performance with strong growth ahead.” In respect to its performance, the broker said:

UK performance has improved, evident in the strong sub growth (ahead of GSe, top end of guidance). This suggests prior sales execution issues are being resolved, alongside MTD tailwinds & solid macro trends; (2) 2H23 opex performance better than expected with expense ratio 77.9% (vs. guide c.80%). This gives confidence that the 75% FY24 target is achievable; (3) Guidance for sales & marketing as % sales to be flat to marginally down implies > 10% in absolute terms, supporting ongoing subscriber growth. Assuming higher CAC/churn, we still estimate XRO can comfortably add +490-585k FY24 subs (GSe 500k, Ex 3); (3) Stronger than expected FY23 FCF margin at 7.3% in FY23, alongside the rule-of-40 focus implies meaningful consensus upgrades (we revise from 25-29% to 32-34% across FY24-26E.

In light of the above and its positive outlook, the broker continues to see plenty of value in the Xero share price. It concludes:

We revise FY24-26 revenue by +0-1% and EBITDA by +1-3%. We bridge our +18% FY24E revenue growth in Ex 4, and forecast expense ratio of 75.2% vs. c.75% target. Our 12m TP is +3% to A$130 in line with earnings/FX. We re-iterate our Buy (on CL) given strong valuation support (absolute & relative), and await: (1) price changes in mid-23 (GSe +3% ANZ ARPU growth); (2) Xerocon Aug 23-24; and (3) 1H24 result and US update Nov 9.

The post Xero share price can still rise almost 30% from here: Goldman Sachs appeared first on The Motley Fool Australia.

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More reading

Motley Fool contributor James Mickleboro has positions in Xero. 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.

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