Broker upgrades Nanosonics (ASX:NAB) share price to a buy rating

Is it time to buy Nanosonics' shares?

| More on:
A smartly-dressed businesswoman walks outside while making a trade on her mobile phone.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Nanosonics Ltd (ASX: NAN) share price had a solid start to the day but is fading in afternoon trade.

At the time of writing, the infection prevention company's shares are down slightly to $5.95.

This means Nanosonics' shares are now down 28% from its 52-week high.

Is the Nanosonics share price good value?

According to a note out of Morgans this morning, its analysts believe the Nanosonics share price is in the buy zone.

The notes reveals that the broker has upgraded the company's shares to an add rating but cut the price target on them to $6.97.

Based on the current Nanosonics share price, this suggests there is almost 17% upside for its shares over the next 12 months.

What did the broker say?

Morgans notes that Nanosonics recently revealed its expectations for a significantly greater cost base than the broker was expecting.

It commented: "The increase in operating costs to A$90.0m is a big step up from the $70.8m incurred in FY21. The continued investment in R&D helps underpin the long-term growth prospects in the business. Our previous research note assumed a cost base of A$82.5m which was clearly below company guidance and needed adjustment."

This has led to the broker downgrading its earnings forecasts accordingly.

Morgans explained: "We have made no changes to revenue for FY23/24, however the higher cost base results in an NPAT downgrade to A$19.0m (from A$26.9m) and to A$27.6m (from A$35.9m) in FY23/24 respectively. We note we have assumed a modest revenue contribution of A$8.3m from flexible endoscope sales staring in FY23."

While this has resulted in a lower valuation, the recent weakness in the Nanosonics share price offsets this and underpinned the recommendation upgrade.

It concludes: "We have upgraded our recommendation to Add from Hold. Despite the lower valuation and target price there is still over 15% upside to our target price which provides the opportunity to upgrade the recommendation."

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. owns shares of and has recommended Nanosonics Limited. The Motley Fool Australia owns shares of and has recommended Nanosonics Limited. 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

Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

Broker looking at the share price.
Broker Notes

Top brokers name 3 ASX shares to buy today

Here's what brokers are recommending as buys this week.

Read more »

A young man talks tech on his phone while looking at a laptop. A financial graph is superimposed across the image.
Broker Notes

Guess which ASX 200 share offers 12% upside and a 4% dividend yield

Bell Potter just slapped a buy rating on this stock.

Read more »

A man leaps from a stack of gold coins to the next, each one higher than the last.
Broker Notes

Qantas or Telstra share price: Which will climb higher in 2024?

Let's see what top broker Goldman Sachs has to say about these ASX blue-chip stocks.

Read more »

A woman smiles as she sits on the bus using her phone and listening to music through headphones.
Small Cap Shares

3 small-cap ASX shares with 'long runways for growth'

DNR's Sam Twidale reckons investors could do worse than buy these guys for the long run.

Read more »

Woman using laptop for job search
Investing Strategies

2 ASX 200 shares to buy for 'strong growth' at decent prices right now

Searching for a bargain? Here's a pair that Catapult's Dylan Evans has his eyes on at the moment.

Read more »

A Paladin Energy miner wearing a hard hat and protective gear stands in front of a large mining truck and smiles to the camera.
Energy Shares

Uranium is set to boom, and this is the 'premium' ASX stock to buy

Shaw and Partners' Jed Richards reckons these are the shares to buy for the nuclear energy theme.

Read more »

female in hard hat crosses fingers
Investing Strategies

The ASX 200 stock that could get second time lucky

These shares have failed to impress in 2024, but many experts believe it's a bargain buy.

Read more »