It has been a disappointing couple of months for G8 Education Ltd (ASX: GEM) shareholders, but things are certainly looking better today. At the time of writing its share price is up 4% to $3.42
Despite this, the childcare centre operator's shares have lost 23% of their value over the last two months following a surprise profit downgrade in December on the back of lower than expected occupancy levels.
In light of this decline, one leading broker believes now could be a good time to pick up shares.
According to a note out of Morgan Stanley, the broker has initiated coverage on G8 Education with an overweight rating and a $4.25 price target.
This price target implies potential upside of over 24% on its share price alone and increases to a total potential return of 30% if we add in the broker's estimate for a 20 cents per share dividend in FY 2018.
Why is Morgan Stanley bullish on G8 Education?
Next month Morgan Stanley expects G8 Education to deliver earnings per share of 22 cents for FY 2017.
While this is a step back from FY 2016, the broker expects earnings growth to accelerate in FY 2018 and beyond. In fact, its analysts have forecast earnings to grow at a compound annual growth rate of 18% over the next three years due to it being well-positioned to benefit from the changes taking place in the child care industry.
In light of this forecast growth, Morgan Stanley's analysts think that G8 Education's shares are trading at a very attractive level.
Should you invest?
There's no denying that G8 Education's shares look attractive at their current levels. However, the company does have a habit of falling short of expectations unfortunately.
In light of this, I think the prudent thing to do is to wait until it releases it full-year results and FY 2018 outlook later next month.
In the meantime, investors may want to consider looking at other consumer discretionary shares such as Collins Foods Ltd (ASX: CKF) and Corporate Travel Management Ltd (ASX: CTD).
