The Xero Limited (ASX: XRO) share price is pushing higher again on Thursday.
In afternoon trade, the cloud business and accounting platform provider’s shares are up 0.5% to $141.63.
This means the Xero share price is now up over 5% since this time last week.
Why is the Xero share price up 5% in a week?
The catalyst for the recent rise in the Xero share price appears to have been the release of a bullish broker note out of Goldman Sachs last week.
According to the note, the broker retained its buy rating and lifted its price target on the company’s shares by 9.3% to $165.00.
Based on the latest Xero share price, this implies potential upside of 16.5% over the next 12 months even after its recent gains.
What did Goldman Sachs say?
The note reveals that Goldman has increased its estimates to reflect price increases in the key ANZ and UK markets.
The broker said: “We see this as a strong positive for Xero in addressing previous concerns on value monetisation, and see limited risk for increased churn, noting (1) it’s consistent with broader industry pricing, and (2) XRO has successfully passed through similarly targeted price rises in Sep-18/Mar-21, with limited churn impacts.”
Goldman is now forecasting revenue growth of 33% in FY 2022. This is up from its previous estimate of 28% and ahead of the market consensus for growth of 27%.
Are there dangers to increasing prices?
While price increases carry risks, as you might have guessed from the Xero share price reaction, Goldman is confident this won’t be an issue.
It explained: “Xero has announced a planned price rise in September 2021 across mid-high plans in its ANZ and UK subscriber bases (Australia +A$2-11, New Zealand +NZ$1.5-3, UK +£2-3).”
“We see this as a strong positive for Xero noting: (1) it will provide meaningful earnings growth into FY22 (uplift of NZ$37mn, with an equal incremental benefit in FY23); and (2) it addresses previous concerns around Xero’s intent to monetise its more mature markets and capture greater value (especially since the COVID deferred price rise came into effect recently in Mar-21).”
“We see limited risk for increased churn, noting (1) that this still places Xero comfortably within broader industry pricing, and (2) XRO has successfully passed through similarly targeted price rises in Sep-18 and in Mar-21, with ANZ churn remaining flat in FY19 to FY21,” it added.
The Xero share price is now up 47% over the last 12 months.
The post Here’s why the Xero (ASX:XRO) share price is up 5% in a week appeared first on The Motley Fool Australia.
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More reading
- 3 reasons why Xero (ASX:XRO) is a quality ASX share
- Xero (ASX:XRO) share price higher on bullish broker note
- 2 excellent ASX growth shares analysts love
- 5 things to watch on the ASX 200 on Friday
- 2 leading ASX 20 shares rated as buys
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. owns shares of and has recommended Xero. The Motley Fool Australia owns shares of and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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