Top broker upgrades G8 Education Ltd: Is its share price in the buy zone?

Should you invest in leading childcare operator G8 Education Ltd (ASX:GEM) after its broker upgrade?

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The G8 Education Ltd (ASX: GEM) share price is in the buy zone according to leading broker Ord Minnett.

A research note released on Friday reveals that its analysts have upgraded the childcare operator from a hold rating to accumulate with a $3.78 price target.

Whilst this price target is approximately 6% higher than the current share price, when you include its forecast fully franked 6.7% dividend it becomes a little more appetising.

Ord Minnett believes margins have now stabilised and appears optimistic that new CEO Gary Carroll will be the start of a new chapter for the company.

I completely agree with Ord Minnett on this one and can't help but feel that G8 Education is a great investment at the current share price.

With its shares trading at 14x trailing earnings and providing a generous dividend that even beats Westpac Banking Corp (ASX: WBC) and the rest of the big four banks, the childcare operator could prove to be a bargain buy.

Whilst FY 2016 has been reasonably mixed after a poor first half, I was pleased to see the company's performance pick up in the second half.

In December management released a market update which revealed that full year earnings before interest and tax is expected to be between $158 million and $162 million, compared to $160 million in FY 2015.

I'm optimistic that the company will hit the top end of its guidance range and then take the second-half momentum through into FY 2017.

Whilst I think G8 Education is a buy currently, prudent investors may want to hold out until the release of its full year results in mid-February.

Motley Fool contributor James Mickleboro has no position in any 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 Bruce Jackson.

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