High-flying Goodman (ASX:GMG) share price not expensive after all: UBS

Fears that the outperforming Goodman Group (ASX: GMG) share price is overvalued should be put to rest, according to a…

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Fears that the outperforming Goodman Group (ASX: GMG) share price is overvalued should be put to rest, according to a leading broker.

UBS uncovered a few surprising trends in the warehouse sector that bode well for the ASX property stock and it upgraded its price target on the Goodman share price by over 13%.

Goodman is regarded as a darling of the property sector as demand for warehouse space surged during the COVID-19 lockdown.

COVID winner with more upside

The Goodman share price surged by around 70% since the market bottomed in March last year when the S&P/ASX 200 Index (Index:^AXJO) added around 50%.

The tectonic shift to online shopping was a big tailwind for Goodman . If you were worried that Goodman would be adversely affected by the recent downgrades issued by the likes of the Kogan.com Ltd (ASX: KGN) share price, think again.

The latest Global Warehouse Occupier Survey by UBS found that it was non-ecommerce tenants that is driving demand for warehouses.

This is apparently due to the global supply chain disruption, which is epitomised by the worldwide shortage of semiconductor chips.

Companies are stocking up on inventory to cushion against any supply shortfall in raw materials.

This isn’t the only notable findings by UBS. The broker found that demand for warehouse space is set to increase by 7% in the next one to two years. That’s a little slower than the average 9% over the previous three surveys, but it’s still a decent increase by any measure.

Why the Goodman share price is still a buy in UBS’ books

“Utilisation of warehouses space (y/y) continues to increase (+6% in 2021, vs +2% in 2020 survey,” said UBS.

“And increasing trends to be in key locations closer to end customers and willing to pay a premium rent to do so.”

These global trends bode particularly well for the Goodman share price and UBS reiterated its “buy” recommendation on its shares.

Upgrade to price target

“GMG remains a major beneficiary as warehouse tenants space requirements grow with an increased focused on new builds and optimal locations near consumers,” said UBS.

“Their current $9.6b development WIP caters for this and we see upside to development earnings/margins that are not yet reflected in medium-term earnings.”

In other words, this ASX property group could be cum-consensus upgrade!

UBS lifted its price target on Goodman to $21.20 from $18.70 a share.

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Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd. The Motley Fool Australia has recommended Kogan.com ltd. 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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