The Costa Group Holdings Ltd (ASX: CGC) share price has been a very strong performer over the last 12 months.
Since this time in 2020, the horticulture company’s shares have risen a sizeable 48%.
Can the Costa share price go even higher?
The good news for investors is that the Costa share price has been tipped to go even higher from here.
According to a note out of Goldman Sachs this morning, the broker has upgraded the company’s shares to a buy rating and lifted the price target on them by a massive 55% to $5.35.
Based on the latest Costa share price, this price target implies potential upside of 21.6% excluding dividends.
And with Goldman forecasting a 2.8% fully franked dividend yield over the next 12 months, this potential return stretches to over 24%.
Why is Goldman Sachs bullish on Costa?
Goldman Sachs made the move due to the improved outlook across Costa’s key categories, more clarity on its growth projects, and its stronger balance sheet. It feels the latter is supportive of acquisitions and organic growth.
It commented: “We have upgraded our rating to Buy (previously Neutral). The following factors are driving our thinking: (1) the improved outlook across key categories; (2) better disclosure and renewed focus on planting growth projects; (3) a stronger balance sheet to support acquisitions and organic growth.”
“High density Avocado roll out; long cane strategy for raspberries and blackberries; China and Morocco planting programs; continued ramp up of Arana premium blueberry production; shift to higher margin pre-cut and packed mushroom lines; rebound in snacking tomato demand and pricing following COVID disruption; roll out of 3rd-party blueberry royalties with new South African region and continued growth in other key regions.”
Goldman Sachs expects the sum of the above to result in its earnings growing by a compound annual growth rate of 17% between FY 2020 to FY 2023.
In light of this growth profile, it feels its shares are good value at 22x estimated FY 2021 earnings.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO. 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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