The Lendlease Group (ASX: LLC) share price could be one of the biggest bargains on the S&P/ASX 200 Index (ASX: XJO) according to one leading broker.
At present the international property and infrastructure company’s shares are down 2.5% to $11.69 but could be destined to go materially higher from here in the coming months.
Who is bullish on Lendlease?
This morning analysts at Goldman Sachs retained their conviction buy rating and lifted their price target on Lendlease’s shares to $16.74.
This price target implies potential upside of 43% over the next 12 months excluding dividends.
It notes that Lendlease is beginning to look a lot like industrial property giant Goodman Group (ASX: GMG).
Goldman explained: “Applying LLC’s refreshed capital allocation and divisional return targets, we estimate a sustainable rate of EPS growth for the Group of ~7%pa. This is in line with the sustainable growth rate we have previously calculated for GMG.AX.”
“LLC’s business model and earnings mix are also increasingly shifting toward that of GMG (increased capital allocation to Investments; higher co-ownership stakes in managed funds; greater use of third-party development capital). This shift should in our view result in a more consistent, managed rate of EPS growth over time,” it added.
The broker notes that consistency is key and also the reason Goodman has smashed the market over the last few years.
“In our view, it is GMG’s consistency – as opposed to quality – of earnings growth that has driven much of its multiple re-rate over the last few years,” it commented.
Attractive valuation.
Goldman estimates that Lendlease trades on a forward price to earnings ratio of just 13, which is materially lower than Goodman at 31x forward earnings.
But this might not be the case for very long. The broker said: “We don’t expect the gap to close, but see plenty of scope for it to narrow as LLC executes on its strategy.”
Should you invest?
I completely agree with Lendlease and believe it could prove to be a bargain buy at the current level.
Goodman Group is one of my favourite blue chip shares. If Lendlease can replicate its success, then it could be generate very strong returns for investors over the next decade.
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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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