Category: Stock Market

One of the leading brokers in Australia has forecast that the Pilbara Minerals Ltd (ASX: PLS) share price will fall more than 30% over the next 12 months.

This negative outlook comes after the ASX lithium share‘s valuation recently recovered some of its losses, rising 13% in the past two months, as the chart below shows.

However, UBS believes the ASX mining share is priced too highly in the current environment.

Negative Pilbara Minerals share price target

A price target is where a broker thinks the share price will be in 12 months from the date of the broker’s note.

UBS’ price target, given in April, on the ASX lithium share is just $2.70. That implies a possible fall of 35% over the next year, which would be a substantial decline.

The broker only expects Pilbara Minerals to generate net profit after tax (NPAT) of $353 million in FY24 and $366 million in FY25, compared to the $2.39 billion NPAT it generated in FY23.

UBS also suggested the business will see negative free cash flow in FY24 and FY25 as the company invests heavily in initiatives to lift production, including the P1000 project.

Why is the broker pessimistic?

UBS believes the current Pilbara Minerals share price implies a lithium price far above the current spot price and the longer-term forecast.

The broker’s estimate for spodumene concentrate for FY25 is US$1,125 per tonne and believes the market is pricing in around US$1,710 per tonne. UBS’ long-term lithium price forecast from 2030 is US$1,400 per tonne. Therefore, UBS is implying there is a disconnect between Pilbara Minerals’ actual profit potential and how much profit the market is implying the miner can generate.

However, the broker noted the ASX lithium share is on track to reach the high end of its FY24 guidance of between 660kt and 690kt, and that the miner “continues to execute well on production and growth plans.”

UBS believes Pilbara Minerals’ balance sheet is “still strong and a competitive strength”, though the cash balance is declining. The broker expects the cash balance to finish FY25 at $1.25 billion, down from $1.78 billion at 31 March 2024.

Pilbara Minerals share price valuation snapshot

According to UBS’ forecasts, the ASX lithium share is priced at more than 34x FY25’s estimated earnings at its current level. The valuation then improves to 23x FY26’s estimated earnings, which is still quite high for a large miner.

The post This top broker says the Pilbara Minerals share price is going to crash 35% appeared first on The Motley Fool Australia.

More reading

• These are the 10 most shorted ASX shares
• Here are the top 10 ASX 200 shares today
• What the federal budget means for interest rates and ASX shares
• How much could a $10,000 investment in Pilbara Minerals shares be worth in 12 months?
• Where to find value inside the top 50 ASX shares in May

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 no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

TechnologyOne Ltd (ASX: TNE) shares were in fine form on Tuesday.

The ASX 200 tech stock ended the day almost 5% higher at $16.75.

Investors were fighting to get hold of the company’s shares following the release of its half year results.

In case you missed it, TechnologyOne reported a 16% increase in revenue to $244.8 million, a 21% lift in annual recurring revenue (ARR) to $423.6 million, and a 17% jump in profit before tax to $61.5 million.

This went down well with the market and put a rocket under its shares. But is it now too late to invest? Let’s find out.

Can this ASX 200 tech stock keep rising?

The team at Bell Potter was impressed with this result. It commented:

1HFY24 revenue excluding interest grew 15% to $241.0m and was 1% above our top-of-the-market forecast of $238.1m. PBT grew 17% to $61.5m but was close to in line with our forecast of $61.2m as the beat at revenue was effectively offset by a lower PBT margin of 25.1% versus our forecast of 25.5%.

But the real highlight was management’s guidance upgrade. The broker explains:

The positive surprise of the result was the full year guidance of 12-16% PBT growth whereas Technology One historically has typically provided guidance of 10-15% growth. The company also said the full year PBT margin would increase by c.100bps which suggests a figure of 30.7%.

In light of this, its analysts believe there’s still room for TechnologyOne’s shares to keep rising from current levels.

According to the note, the broker has reaffirmed its buy rating with an improved price target of $19.00 (from $18.50).

Based on its current share price, this implies potential upside of just over 13% for investors over the next 12 months. And if you include dividends, the total potential return stretches to almost 15%.

Commenting on its bullish view on the ASX 200 tech stock, the broker concludes:

We have increased the multiples we apply in the PE ratio and EV/EBITDA from 42.5x and 22.5x to 45x and 23.75x given an increase in the average multiple of the comps and the likelihood that Technology One will beat its FY24 guidance. There is, however, no change in the WACC of 9.1% we apply in the DCF. The net result is a 3% increase in our PT to $19.00 which is a 13% premium to the share price and we maintain our BUY recommendation.

The post Is this ASX 200 tech stock in the buy zone following its results? appeared first on The Motley Fool Australia.

More reading

• Here are the top 10 ASX 200 shares today
• Why ALS, OFX, Skycity, and TechnologyOne shares are surging today
• ASX 200 tech stock lifts off on another record-setting half-year profit
• 5 things to watch on the ASX 200 on Tuesday
• These ASX 200 shares could rise 15% to 50%

Motley Fool contributor James Mickleboro has positions in Technology One. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Technology One. The Motley Fool Australia has recommended Technology One. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Telstra Group Ltd (ASX: TLS) share price was under pressure on Tuesday.

So much so, the telco giant’s shares ended the day almost 3% lower at a new multi-year low of $3.57.

Why did the Telstra share price tumble?

Investors were hitting the sell button after the company released an update on its earnings guidance for FY 2024 and introduced its guidance for next year.

In respect to the former, the broker has reaffirmed its guidance for FY 2024. It continues to expect underlying EBITDA in the range to $8.2 billion to $8.3 billion.

And looking to FY 2025, Telstra has advised that it is expecting its underlying EBITDA to increase to $8.4 billion to $8.7 billion. A key driver of this growth will be a $350 million cost reduction plan.

Broker reaction

Goldman Sachs has been running the rule over the update and has seen positives and negatives.

Let’s start with the negatives. The main one relates to the company’s decision to pull back on its inflation-linked price increases. It said:

Key negatives: (1) Removal of CPI linked-pricing mechanism is a negative for industry rationality in mobiles, with Telstra no longer clearly signaling its intent to lead market pricing higher each year (albeit, we do acknowledge Optus has not followed this lead in recent years); (2) It removes the contracted expectation from TLS customers that their mobile pricing will increase each year; (3) Although not having a CPI link provides the theoretical potential to do greater price rises, we believe in practice this is extremely unlikely; (4) We believe TLS mobile pricing decision in FY25 will now be significantly impacted by Optus pricing decisions- but unless announced around the FY24 result on 23rd May, we believe this is unlikely until after the new CEO commences in November; (5) Given franking constraints on our revised EBITDA estimate, alongside announced restructuring costs, we lower our FY25 dividend to 18.5c (from 19c).

There are positives, though. For example, Goldman Sachs highlights that the cost reductions are better than it was expecting. It said:

Key positives: (1) The 2/3 reduction in NAS products and the 10% headcount reduction are more significant than we had expected, benefiting both FY25 & FY26 earnings (c.$225mn/c.$100mn incremental earnings), allowing the mid-point of TLS EBITDA guidance to be broadly in-line with expectations, despite the deferred price rise; (2) The announced restructure should support a more favorable EBA outcome, ahead of the current deal expiring Sept-24; (3) 2H24 mobile sub growth of c.4% remains strong and ahead of GSe, suggesting limited competitive impacts.

Is this a buying opportunity?

The sum of the above has been the broker trimming its valuation for the Telstra share price to $4.25 (from $4.55) but retaining its buy recommendation.

Based on its current share price, this implies potential upside of 19% for investors over the next 12 months. It commented:

Overall we revise TLS FY24-26 EBITDA -1% and EPS by -1% to -3%, reflecting the revised mobile outlook and broader restructure. Our 12m TP is -7% to A$4.25, given earnings and reduction in mobile EBITDA multiple to 6.0X (was 6.5X) on increased mobile uncertainty. Buy.

It has also reduced its dividend forecast for next year. It now expects 18 cents per share this year and then 18.5 cents per share in FY 2025.

The post What are brokers saying about the Telstra share price after this week’s update? appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Wednesday
• 3 ASX 300 shares hitting new 52-week lows: Are they cheap buys?
• Telstra share price slips amid 2,800 cuts for growth
• Should you buy Telstra stock on a pullback?
• Top ASX dividend shares to buy in May 2024

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 Goldman Sachs Group. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

When it comes to dividends, the Australian share market is among the most generous in the world.

Traditionally, the ASX offers income investors a dividend yield of approximately 4%.

However, this is the average. There are shares offering smaller yields and others offering larger yields.

Two such examples of the latter are named in this article. Here’s what sort of dividend income they could provide investors with in the coming years:

Accent Group Ltd (ASX: AX1)

Accent Group is a retailer and distributor of performance and lifestyle footwear.

Across its growing brand portfolio, it has over 800 stores in Australia and New Zealand and multiple online stores. These brands include HypeDC, Sneaker Lab, Platypus, Stylerunner, Subtype, and The Athlete’s Foot. It also owns the Nude Lucy and Glue Store brands.

Bell Potter thinks that it could be a good ASX share to buy right now. Particularly given how its shares are down 21% over the past 12 months. The broker feels this has left its shares trading at a very attractive level. It has put a buy rating and $2.50 price target on them.

This share price weakness also means that the potential dividend yields on offer with its shares have now ballooned. Bell Potter is forecasting fully franked dividends per share of 13 cents in FY 2024 and then 14.6 cents in FY 2025. Based on the latest Accent share price of $1.80, this represents dividend yields of 7.2% and 8.1%, respectively.

This means that a $10,000 investment would result in dividends of approximately $720 and then $810 if Bell Potter is on the money with its recommendation.

APA Group (ASX: APA)

Another ASX share that could provide big dividend yields is APA Group. It is an energy infrastructure business that owns, manages, and operates a diverse portfolio of assets. This includes gas transmission, gas storage and processing, and gas-fired and renewable energy power generation businesses located across Australia.

Macquarie is a fan of the company and believes its long run of dividend increases can continue. The broker currently has an outperform rating and $9.40 price target on its shares.

As for income, the broker is forecasting dividends per share of 56 cents in FY 2024 and 57.5 cents in FY 2025. Based on the current APA Group share price of $8.72, this equates to 6.4% and 6.6% dividend yields, respectively.

If Macquarie’s estimates prove accurate, this would mean that a $10,000 investment results in dividends of approximately $640 and then $660.

The post Buy these ASX shares and get 6% and 7% dividend yields appeared first on The Motley Fool Australia.

More reading

• 2 high-yield ASX stocks I’d buy for dividends
• 4 ASX income stocks to buy for 4% to 8% dividend yields
• Forget term deposits and buy these ASX dividend shares
• Looking to retire? Buy these ASX dividend shares for passive income
• 2 high-yield ASX dividend shares to buy as they bounce

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 Macquarie Group. The Motley Fool Australia has positions in and has recommended Apa Group and Macquarie Group. The Motley Fool Australia has recommended Accent Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Generating passive income is a key goal for many modern investors. ‘But, where to start?’, you may ask.

One effective strategy for building a passive income stream is to invest in a portfolio of Australian shares on the ASX. Here, you can buy interests in a wide array of quality companies that return cash to their shareholders in the form of dividends.

With this in mind, here’s how I’d aim to transform $10,000 in savings into $526 in monthly passive income.

Which ASX shares to buy?

The first strategy I’d adopt in my quest to build long-term passive income is to focus on the ASX 200 index.

Sure, plenty of investors prefer to choose their own mix of individual dividend-paying stocks. But I’m attracted to the simplicity, diversification, and cost-effectiveness of investing in Australia’s largest stock indexes. These generally offer stable returns and plenty of diversification, providing reliable growth over time.

The ASX 200 represents the largest companies on the ASX and, in my opinion, offers a good balance of risk and return.

Why the ASX 200 for passive income?

The Australian share market has historically delivered consistent returns. Since 2014, the ASX 200 index has seen average returns of around 8% per annum, including dividends.

Investors can essentially ‘buy’ exposure to the overall ASX 200 through the purchase of an index-tracking exchange-traded fund (ETF). This requires little effort to achieve the market’s average returns. And, as they say: ‘If you can’t beat them, join them!’.

The iShares Core S&P/ASX 200 ETF (ASX: IOZ) is one such ETF.

Since its inception in December 2010, the fund has delivered an average annual return of 7.98%. The ETF has also grown its annual dividend from 95.12 cents per share in 2014 to $1.123 paid over the last 12 months – an 18% increase.

Based on the iShares Core S&P/ASX 200 ETF price of $31.72 at the time of writing, this equates to a trailing dividend yield of 3.54%, excluding franking credits.

A long horizon for growing passive income

The second ingredient I need for my passive income recipe is a long time frame. Let’s call this my investment horizon.

If the ASX 200 continues to produce an average return of 7% to 8% each year, the power of compounding will kick in – and it will really start to deliver over time.

With a $10,000 investment, assuming a 7.5% average annual return, the starting capital would be worth $180,442 after 40 years.

Assuming the IOZ ETF’s current dividend yield of 3.54% is maintained, this would then produce $6,388 in annual dividends or $532 in monthly passive income.

Foolish takeaway

With these two ingredients (and a sprinkling of patience!), a diversified portfolio of high-performing ASX stocks can lead to exceptional passive income over time. Just keep in mind that investing is always a long-term process and that past performance is no guarantee of future returns.

The post $10,000 in savings? Here’s how I’d aim to turn that into $526 in monthly passive income appeared first on The Motley Fool Australia.

More reading

• 3 easy ways to reduce your ASX share portfolio’s volatility right now
• Is the iShares Core S&P/ASX 200 ETF (IOZ) a good long-term investment?

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

On Tuesday, the S&P/ASX 200 Index (ASX: XJO) was out of form and edged into the red. The benchmark index fell 0.15% to 7,851.7 points.

Will the market be able to bounce back from this on Wednesday? Here are five things to watch:

ASX 200 expected to rise

It looks set to be a better day for the Australian share market on Wednesday following a good session in the United States. According to the latest SPI futures, the ASX 200 is expected to open the day 19 points or 0.25% higher. On Wall Street, the Dow Jones rose 0.15%, the S&P 500 pushed 0.25% higher, and the Nasdaq climbed 0.2%.

Oil prices fall

It could be a subdued session for ASX 200 energy shares including Beach Energy Ltd (ASX: BPT) and Woodside Energy Group Ltd (ASX: WDS) after oil prices dropped overnight. According to Bloomberg, the WTI crude oil price is down 0.9% to US$79.06 a barrel and the Brent crude oil price is down 1% to US$82.88 a barrel. This appears to have been driven by lower geopolitical risks.

Telstra remains a buy

The Telstra Group Ltd (ASX: TLS) share price hit a multi-year low on Tuesday after the telco giant released an update. The team at Goldman Sachs has been looking over the update and sees both positives and negatives. Ultimately, though, the broker has retained its buy rating with a reduced price target of $4.25. It said: “Overall we revise TLS FY24-26 EBITDA -1% and EPS by -1% to -3%, reflecting the revised mobile outlook and broader restructure. Our 12m TP is -7% to A$4.25, given earnings and reduction in mobile EBITDA multiple to 6.0X (was 6.5X) on increased mobile uncertainty.”

Gold price eases

ASX 200 gold shares Evolution Mining Ltd (ASX: EVN) and Northern Star Resources Ltd (ASX: NST) could have a soft session after the gold price eased overnight. According to CNBC, the spot gold price is down 0.4% to US$2,428.7 an ounce. A stronger US dollar weighed on the precious metal.

Webjet update

Webjet Ltd (ASX: WEB) shares will be in focus today when the travel agent releases its FY 2024 results. According to a note out of Goldman Sachs, its analysts are forecasting group total transaction value (TTV) of $5,635 million, revenue of $469 million, and underlying EBITDA of $190 million. The latter will be an increase of 40.7% year on year. The key driver of its growth is expected to be the WebBeds business. Goldman is forecasting segment TTV and EBITDA growth of 40% for FY 2024.

The post 5 things to watch on the ASX 200 on Wednesday appeared first on The Motley Fool Australia.

More reading

• Here are the top 10 ASX 200 shares today
• ASX 200 gold stocks in focus as gold price smashes record highs
• 3 ASX 300 shares hitting new 52-week lows: Are they cheap buys?
• The ASX 200 was almost hit by an RBA interest rate hike in May. Now what?
• Telstra share price slips amid 2,800 cuts for growth

Motley Fool contributor James Mickleboro has positions in Woodside Energy Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

When fund managers with billions of dollars under their control decide to invest in an ASX share, it’s usually worth a second look.

After all, successful fund managers don’t get that way thanks to poor investment decisions. And who would be better to get tips for your next ASX buy than from professionals whose full-time job is scouring the markets for deals.

As such, today we’ll be looking at four ASX shares that are currently being favoured by billion-sized managed funds, as reported by the Australian Financial Review (AFR).

4 ASX shares that fund managers are eyeing off

First up is healthcare giant CSL Ltd (ASX: CSL). The AFR reports that a number of successful fund managers have been buying CSL shares over the past 12 months. They include Chris Kourtis, director of Ellerston Captial, Sam Byrnes of ECP Asset Management and Jun Bei Liu of Tribeca Investment Partners.

Lieu states that:

CSL has been a great compounder over many, many years… You find it in the bottom drawer of so many investment portfolios because it seems to grow year in, year out … and has so many of the characteristics of a quality company.

Analysts at Macquarie are also reportedly bullish on CSL. So much so that one analyst recently told clients that CSL shares “could hit $500 as the company overcame short-term challenges and began to trade at price-to-earnings multiples closer to its decade average”.

Another stock to take note of is ASX 200 gaming share Aristocrat Leisure Ltd (ASX: ALL). This company is reportedly the only one outside the ASX 20 to find itself among “the most held [stock] by stock pickers”. DNR Capital’s High Conviction Strategy and Macquarie’s Australian Shares Fund are some of this company’s highest-profile backers at the moment.

ResMed Inc (ASX: RMD) is another ASX share to take note of. Resmed has been found to be the “most loved” stock by fund managers on the market. Ellerston Capital, as well as Hyperion Asset Management and Airlie Funds Management, reportedly count as some of ResMed’s biggest backers.

A popular REIT to finish off

Finally, let’s discuss the popular real estate investment trust (REIT) Goodman Group (ASX: GMG). According to the AFR, Goodman is another stock with broad-based support amongst billionaire managed funds. The landowner has a presence in one out of three managed funds on the ASX. It counts Tribeca, as well as Totus Capital, as some of its most enthusiastic backers.

Tribeca’s Liu stated that “Goodman had decades of execution and a good track record”. Totus’ Tim McGraw was even more effusive:

Goodman is a world leader with Grade A industrial property in tier one cities in Australia, the US and Europe… The company has a large and growing data centre pipeline and, while not cheap versus other listed REITs, Goodman is very cheap relative to other listed data centre landlords.

So there you have it, four ASX shares that top ASX fund managers count amongst their favourite investments right now. Let’s see who is right with their picks over the next year or two.

The post 4 ASX shares held by billionaire fund managers appeared first on The Motley Fool Australia.

More reading

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Motley Fool contributor Sebastian Bowen has positions in CSL. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL, Goodman Group, Macquarie Group, and ResMed. The Motley Fool Australia has positions in and has recommended Macquarie Group and ResMed. The Motley Fool Australia has recommended CSL and Goodman Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

There are a lot of ASX dividend shares to choose from on the Australian share market.

To narrow things down for income investors, I have picked out two that Morgans has put on its best ideas list this month.

Let’s see what the broker is saying about these shares:

Coles Group Ltd (ASX: COL)

Analysts at Morgans think this supermarket giant would be a top ASX dividend share to buy right now. The broker currently has an add rating and $18.95 price target on its shares.

It believes that recent share price weakness has been overdone and created a buying opportunity for investors. The broker explains:

In our view, the ongoing scrutiny on the supermarkets has affected short term sentiment in the sector, which we believe creates a good buying opportunity in COL. While Liquor sales remain soft, we expect the core Supermarkets division (~92% of earnings) to continue to be supported by further improvement in product availability, reduction in total loss, greater in-home consumption due to cost-of-living pressures, and population growth.

In respect to dividends, it is expecting Coles to be in a position to pay fully franked dividends of 66 cents per share in FY 2024 and 69 cents per share in FY 2025. Based on the current Coles share price of $16.21, this implies dividend yields of approximately 4.1% and 4.25%, respectively.

Dexus Industria REIT (ASX: DXI)

Another ASX dividend share that has been named as a buy by Morgans is Dexus Industria. It is a real estate investment trust with a focus on industrial warehouses. The broker has an add rating and $3.18 price target on its shares.

Morgans believes the company is well-positioned to benefit from solid demand for industrial property and its development pipeline. It commented:

The portfolio is valued at $1.6bn across +90 properties with 89% of the portfolio weighted towards industrial assets (WACR 5.38%). The portfolio’s WALE is around 6 years and occupancy 97.5%. Across the portfolio 50% of leases are linked to CPI with the balance on fixed increases between 3-3.5%. While we expect cap rates to expand further in the near term, DXI’s industrial portfolio remains robust with the outlook positive for rental growth. The development pipeline also provides near and medium-term upside potential and post asset sales there is balance sheet capacity to execute.

As for income, the broker is forecasting dividends per share of 16.4 cents in FY 2024 and then 16.6 cents in FY 2025. Based on the current Dexus Industria share price of $2.98, this will mean dividend yields of 5.5% and 5.6%, respectively.

The post Broker says these ASX dividend shares are top buys appeared first on The Motley Fool Australia.

More reading

• 4 ASX income stocks to buy for 4% to 8% dividend yields
• Top ASX dividend shares to buy in May 2024
• 2 of the best ASX 200 blue-chip shares to buy in May
• Why Goldman Sachs just upgraded Coles shares
• Brokers name 4 ASX 200 dividend shares to buy

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 no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Coles Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The James Hardie Industries plc (ASX: JHX) share price was sold off on Tuesday.

The building materials company’s shares ended the day a sizeable 15% lower at $46.67.

Investors were hitting the sell button in response to the release of the ASX 200 stock’s fourth quarter and full year update.

James Hardie reported record fourth quarter sales of US$1,004.9 million and record full year sales of US$3,936.3 million. However, despite this strong top line performance, its earnings fell short of expectations for the fourth quarter.

And putting further pressure on the ASX 200 stock was its guidance for FY 2025, which was well below consensus estimates.

Broker reaction

Analysts at Goldman Sachs have been looking over the result. They note that James Hardie’s fourth quarter profit and guidance for FY 2025 disappointed. The broker said:

4Q24 result slightly below GSe. 4Q24 underlying NPAT of US$174m was 2% below GSe/Visible Alpha consensus estimates of US$178m/177m. Within this, EBIT of US$233m was 2% below GSe with sales 1% above GSe. JHX had previously guided to group NPAT of US$165-185m.

FY25 guidance disappoints. JHX issued group adjusted net income guidance US$630-700m vs prior GSe at US$761m and consensus at $762m (i.e. 13% lower at the midpoint).

Is this ASX 200 stock good value after the selloff?

Despite the disappointment, Goldman remains positive on James Hardie and believes yesterday’s selloff has created a buying opportunity for investors.

In response to the update, the broker has reiterated its buy rating on the company’s shares with a reduced price target of $57.85 (from $61.65).

Based on its current share price of $46.67, this implies potential upside of 24% for investors over the next 12 months.

To put that into context, a $10,000 investment would grow to become worth $12,400 if Goldman is on the money with its recommendation.

Why is Goldman staying bullish?

Goldman believes that the market is undervaluing the ASX 200 stock even after lowering its earnings estimates for the near term. It explains:

As a result of our earnings changes (partially offset by updated reference multiples), our DCF & EV/EBIT based TP declines 6% to A$57.85. Notwithstanding the forecast revisions we believe that the share price is capitalizing earnings levels that are below both FY25E GSe and (more meaningfully) FY26E levels.

We see upside from cyclical improvement and strategic execution against higher value product mix targets, which has scope to substantially improve group profitability.

The post Why this beaten down ASX 200 stock can jump 24% appeared first on The Motley Fool Australia.

More reading

• Why Infratil, James Hardie, Sonic Healthcare, and Star Entertainment shares are sinking today
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• Leading brokers name 3 ASX shares to buy today
• Here are the top 10 ASX 200 shares today

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 Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

ResMed CDI (ASX: RMD) shares closed at $32.80 apiece on Tuesday, up 1.14% for the day.

The stock is up 29% in the year to date and up 55% since their 52-week low in October.

The sleep apnoea device maker has been in recovery mode after a slump in the stock price last year.

ResMed shares staging an impressive recovery

As the chart above shows, ResMed shares were sold off in the second half of last year.

The stock fell for two reasons. There was a general healthcare sector sell-off; and investors were feeling increasingly concerned that GLP-1 obesity drugs like Ozempic would reduce ResMed’s earnings.

They feared this because obesity is a common pre-cursor to sleep apnoea. So their thinking was if Ozempic eradicates obesity, ResMed may not sell as many sleep apnoea machines in the future.

The ASX 200 healthcare share took a real beating on those fears. Resmed shares hit a four-year low of $21.14 on 13 October.

Many brokers slapped buy ratings on ResMed shares following the sell-off, reasoning that the global sleep apnoea market was huge and not all patients had obesity, so investors’ fears were unfounded.

ResMed CEO Mick Farrell tried to reassure investors by telling them the company was proactively tracking the impact of Ozempic and GLP-1 medicines through internal modelling.

How will Ozempic impact ResMed’s earnings?

By October, Farrell was ready to quantify the impact. Ozempic and GLP-1s may cost the company 200 million people in terms of the total addressable market (TAM) for sleep apnoea products.

That sounds like a lot, but not really when you consider the TAM for sleep apnoea worldwide will be 1.2 billion by 2050 after taking into account the impact of GLP-1s, according to Farrell.

And with just 22.5 million people using ResMed CPAP machines, the available TAM remained enormous.

At the time, Farrell said they were not seeing any reduced use of ResMed products among patients using both GLP-1s for their obesity and ResMed devices for their sleep apnoea.

Then in January, Farrell revealed that further internal research showed a 10% increase in patients on GLP-1s buying sleep apnoea machines.

Not only that, but as patients on GLP-1s lost weight, they were not abandoning their CPAP devices, either.

This is why Blackwattle Investment Partners is happy to have ResMed shares as its top active position in the Large Cap Quality Fund today. And they reckon the share price has more room to run.

ResMed has turned GLP-1s into ‘an opportunity’

In an update released last week, Blackwattle Large Cap portfolio managers Ray David, Joseph Koh and David Meehan said ResMed had delivered a strong March quarterly update.

They said this had further alleviated investors’ concerns over the threat of GLP-1 drugs, commenting:

… ResMed has turned the GLP threat into an opportunity. Patient funnel flow into CPAP diagnosis is accelerating due to ResMed’s efforts to raise awareness of the combined benefits of GLP weight loss therapy with its CPAP products.

In addition, profitability is accelerating due easing freight inflation, and the transition to ResMed’s new Airsense 11 platform.

This platform is a meaningful step up from the previous CPAP platform, featuring increased connectivity functions such as personal therapy and care check-in settings which have been years in development.

ResMed shares still trading at ‘hefty discount’

The managers said that ResMed shares had rebounded strongly but still offered value today.

Even after the recent share price outperformance, ResMed’s forward PE of 24x is still at a hefty discount to the 10-year average.

We still consider this an attractive valuation relative to ASX Industrials given ResMed generates superior returns on capital, generates strong cashflow, and has tailwinds from an aging population and obesity rates, despite the birth of the GLP drug class.

We also believe the competitive landscape will be benign for some time as its likely to take years for Koninklijke Philips NV (NYSE: PHG) to build back trust given its high-profile recall.

Blackwattle describes ResMed as “one of the most innovative medical equipment providers globally”.

The managers say this innovation is being shown in the application of cloud connectivity with 25 million devices. This provides data to payers and helps facilitate resupply.

The post ResMed shares higher as company ‘turns the GLP threat into an opportunity’: Fundie appeared first on The Motley Fool Australia.

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Motley Fool contributor Bronwyn Allen 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 ResMed. The Motley Fool Australia has positions in and has recommended ResMed. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.