This leading broker thinks the NEXTDC share price can go higher

Analysts at Goldman Sachs believe the NEXTDC Ltd (ASX:NXT) share price can still go higher from here. Here's why they are bullish…

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The NEXTDC Ltd (ASX: NXT) share price was a strong performer on the ASX 200 on Thursday.

The data centre operator's shares stormed to a record high of $10.75 after announcing new contract wins in New South Wales.

Is it too late to buy NEXTDC shares?

Although NEXTDC's shares are certainly not cheap, I would still be a buyer of them if you're prepared to make a long term investment.

This is because I believe the company is well-positioned to grow its earnings at an above-average over the 2020s thanks to the shift to the cloud. This seismic shift is driving incredible demand for capacity in data centres and shows no signs of slowing.

One leading broker that believes NEXTDC's shares can still go higher from here is Goldman Sachs.

According to a note out of the investment bank this morning, its analysts have retained their buy rating and lifted their price target by 14% to $11.10.

What did Goldman Sachs say?

Goldman Sachs was very pleased with NEXTDC's update on Wednesday and particularly its commitment options.

Its analysts commented: "NXT has announced a +4MW increase in S2 contracted commitments, which follows the previous +6MW (March) and +6MW (May) Melbourne announcements earlier this calendar year. NXT also disclosed ~24MW of 'options' in the NSW market (vs. 33MW options in VIC)."

"This announcement is another clear positive for NXT, and continues the momentum from the record 2H20. Combined, the contracted commitments and options in NSW now account for 60MW, which exceeds the total capacity of S1 and S2 facilities, implying that NXT now has 14MW of options for its S3 facility, which it recently commenced construction on," it added.

Furthermore, the broker notes that the company now has 26MW of contracted, but not yet billing MW. It estimates this to be worth $86 million of revenue at $3.3 million/MW.

Goldman expects this to ramp up over the next 2 to 3 years, underpinning its forecast FY 2019-FY 2023 EBITDA compound annual growth rate of +25%.

After which, the broker expects the conversion of the existing 57MW of expansion options (worth an estimated $190 million of revenue) to be the next driver of growth. It expects this to be supported by ongoing Enterprise growth and the potential for further new contract wins in Sydney, Melbourne, and the soon to be completed P2 facility in Perth.

Foolish Takeaway.

I think Goldman is spot on with its assessment and believe NEXTDC can continue to beat the market over the next decade. This could make it a great buy and hold option.

Motley Fool contributor James Mickleboro owns shares of NEXTDC Limited. 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 Scott Phillips.

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