Carsales.Com Ltd (ASX:CAR) shares driven higher by broker upgrades

The Carsales.Com Ltd (ASX: CAR) share price is on course to finish the week on a positive note.

In morning trade the car listings company’s shares were up as much as 6% to $14.95 before giving back some of these gains.

At the time of writing the Carsales share price is up 3.5% to $14.60.

Why are Carsales’ shares storming higher today?

With no news out of the company today, this push higher appears to relate to the release of two positive broker notes this morning.

According to a note out of Citi, the broker has upgraded Carsales’ shares from a sell rating to a buy rating.

Citi has also lifted its price target on the company’s shares significantly to $16.65. This price target implies potential upside of approximately 14% excluding dividends from the current share price.

The note reveals that Citi’s analysts believe that Carsales will benefit from an acceleration in depth advertisements penetration and further growth in volume.

Overall, this is expected to result in earnings growing by a compound annual growth rate of 12% over a three-year period.

This year Citi expects Carsales to achieve earnings per share of 60 cents, meaning its shares are trading at 24x forward earnings at present. Which the broker feels is great value.

Incidentally, the broker has retained its sell rating on industry peer SEEK Limited (ASX: SEK).

Elsewhere, a note out of Credit Suisse reveals that its analysts have upgraded Carsales’ shares to an outperform rating from neutral. Credit Suisse lifted its price target to $16.00.

According to the note, the broker has made the move for similar reasons. It believes that Carsales will benefit from higher pricing and the penetration of its depth advertisements.

Should you invest?

I would have to agree with both Citi and Credit Suisse on Carsales and feel investors ought to consider snapping up shares along with industry peer REA Group Limited (ASX: REA).

The latter has seen its share price fall around 13% from its 52-week high and to a level that I think is attractive for a long term investment.

Finally, here's another tech share that has been rated as a buy this month.

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Motley Fool contributor James Mickleboro owns shares of SEEK Limited. The Motley Fool Australia has recommended Limited, REA Group Limited, and SEEK Limited. 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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