Broker tips Costa (ASX:CGC) share price to shoot higher

Here’s why this top broker is a fan of Costa…

| More on:
Smiling female investor holds hands up in victory in front of a laptop

Image source: Getty Images

The Costa Group Holdings Ltd (ASX: CGC) share price has been a poor performer in 2021.

Since the start of the year, the horticulture company’s shares are down a disappointing 18%.

Is the Costa share price good value?

One leading broker that believes the Costa share price is good value is Goldman Sachs.

This morning the broker responded to news that the company is acquiring 2PH Farms by reaffirming its buy rating, albeit with a trimmed price target of $4.20.

Based on the latest Costa share price, this represents potential upside of 23.5% over the next 12 months. This potential return stretches to 26% if you include dividends.

What did Goldman say?

Goldman sees a lot of positive in the company’s plan to acquire 2PH Farms.

It commented: “We think the proposed acquisition of 2PH would be a good fit with CGC’s existing citrus operations. Key attractions include: geographic diversification of production; clear organic growth profile to 2025 as trees mature and further planting takes place; access to high growth, premium-price Asian export markets; exclusive perpetual access to plant breeder rights (PBR); long term platform to establish offshore production and/or license PBR.

The broker also notes that it should be a relatively low risk acquisition. This is due to the two companies having a long-established relationship, with Costa marketing 2PH Farms’ citrus domestically for over 10 years.

Goldman also sees attractive long term growth potential from the acquisition due to the age of its orchards. This could be good news for the long term performance of the Costa share price.

Its analysts explained: “CGC expects c.10% accretion in FY21 on a pro forma basis; we see significant potential upside as the 2PH orchards mature. >50% of the 1,474 ha planted are yet to reach maturity and are <5 years old; a further 210 ha is due to be planted by 2023. Based on scenario analysis below, we estimate EPS accretion of c.14-24% in FY25 as production ramps up from the current ~30k tonnes in FY21 to >60k tonnes by 2025.”

All in all, the broker appear to believe the risk/reward on offer with Costa’s shares is compelling and has retained its buy rating.

Should you invest $1,000 in Costa right now?

Before you consider Costa, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Costa wasn't one of them.

The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of August 16th 2021

Motley Fool contributor James Mickleboro has no position in any of the stocks 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 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.

More on Broker Notes