Top broker tips Australian Clinical Labs (ASX:ACL) share price to shoot higher

This broker thinks ASX investors should get better acquainted with this ASX share…

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The Australian Clinical Labs Ltd (ASX: ACL) share price is pushing higher on Monday.

In afternoon trade, the pathology services provider’s shares are up 2% to $3.76.

Despite this gain, the Australian Clinical Labs share price is still trading 6% below its May IPO price of $4.00.

Why is the Australian Clinical Labs share price pushing higher?

Investors have been buying the company’s shares this morning following the release of a bullish broker note out of Goldman Sachs.

According to the note, the broker has initiated coverage on the company with a buy rating and $4.80 price target. Based on the current Australian Clinical Labs share price, this implies potential upside of almost 28% over the next 12 months.

Goldman Sachs was the joint lead manager and underwriter of the company’s IPO last month.

What did Goldman Sachs say?

Goldman believes that Australian Clinical Labs will benefit from a series of operational investments. These include its unified Laboratory Information System and upgraded central laboratory network.

In addition to this, over the long term, the broker expects the company’s growth to track around market growth of 3% to 5%. However, it sees scope for the company to achieve the upper end of this range if it executes well on growth strategies in New South Wales and Queensland.

Furthermore, it notes that with leverage of 1.0x net debt/EBITDA, there is the opportunity to accelerate its growth through acquisitions.

Attractive valuation

Another reason to be positive on the Australian Clinical Labs share price is its valuation. Particularly in comparison to rivals Healius Ltd (ASX: HLS) and Sonic Healthcare Limited (ASX: SHL).

Goldman commented: “We believe current trading multiples are undemanding: FY22E EV/EBITDA 6.8x (vs. HLS 9.1x; SHL 11.3x) and FY22E EV/EBIT: 16.2x (vs. HLS 20.1x; SHL 17.6x).”

“Whilst the forward EBIT growth profile of +4% (FY22-25E) is less attractive than HLS (+7%), it is above SHL (+2%), and hence in-line with the peer average. ASX 200 HC [healthcare sector] trades on 21x EBITDA for +8% CAGR,” it added.

This could make it worth considering if you’re looking for healthcare options.

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James Mickleboro does not own any shares mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Sonic Healthcare Limited. 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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