The NEXTDC Ltd (ASX: NXT) share price has been a strong performer over the last 12 months.
Since this time last year, the data centre operator’s shares have rallied 22% higher.
Can the NEXTDC share price keep climbing?
One leading broker that believes the NEXTDC share price can still run a lot higher from here is Goldman Sachs.
According to a note released this morning, the broker has reiterated its conviction buy rating and put a $14.80 price target on the company’s shares.
Based on the current NEXTDC share price of $11.80, this price target implies potential upside of 25% over the next 12 months.
What did Goldman say?
Goldman notes that one of NEXTDC’s key competitors, Equinix, recently hosted an analyst day and highlighted the robust outlook for interconnected data centres.
Equinix advised that it expects FY 2021-2025 revenue to grow at a compound annual growth rate (CAGR) of 7% to 9%. It also estimates that its total addressable market (TAM) will grow from US$60 billion to US$80 billion by FY 2025.
This appears to support Goldman’s view that NEXTDC is well-positioned to deliver strong revenue and EBITDA growth over the coming years.
Goldman commented: “We remain high-conviction on the growth profile ahead, forecasting +37MW contract wins across FY22-23E (=65% conversion of options). Combined with recent share price underperformance, this gives an attractive growth adjusted valuation. We reiterate our Buy (on CL) on NXT, the most compelling growth story in our coverage.”
In addition to the above, the broker notes that merger and acquisitions activity is continuing in the global data centre market and this could soon include NEXTDC. Goldman suspects that the company could be interested in acquiring the Australian assets of Global Switch.
It estimates that NEXTDC would require $550 million to $900 million of equity if acquired for $1.2 billion to $1.6 billion. This would represent a 14-18x EV/EBITDA applied to calendar year 2019 EBITDA. Though, it acknowledges that the company has not confirmed whether it would be interested in such an acquisition. This might be something for investors to look out for.