Why the Graincorp (ASX:GNC) share price could outperform next week

The Graincorp Ltd (ASX: GNC) share price could soon be setting new record highs as it prepares to release its …

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The Graincorp Ltd (ASX: GNC) share price could soon be setting new record highs as it prepares to release its earnings results next week.

It the numbers are as good as Macquarie Group Ltd (ASX: MQG) are expecting, shares in the grain handler could rally to its price target.

The broker pegs fair value at $7.32 a share. It is recommending investors buy the ASX shares ahead of the company’s results on 11 November.

Graincorp share price rising ahead of results

Perhaps some of the enthusiasm is already seeping into the Graincorp share price. It’s jumping 1.6% to $6.52 in morning trade.

That puts it within striking distance to its record high of $6.61 that it reached last month and is still 12.3% below Macquarie’s target.

Don’t forget that the expected FY22 dividend of around 4% will come on top of any capital gain.

Record earnings forecast

Macquarie reckons that Graincorp will deliver a record FY21 result next Thursday with momentum carrying through to the current financial year, and maybe even into FY23.

“We are at the upper end of GrainCorp’s guidance of $310-330m EBITDA and $125-140m NPAT,” said Macquarie.

“This largely reflects a favourable seasonal backdrop across Eastern Australia, resulting in the largest ECA winter crop on record in 2020/21 (30mmt vs LTA of 17mmt).”

Graincorp share price could be on an upgrade cycle

The broker is forecasting Graincorp to post an earnings before interest, tax, depreciation and amortisation (EBITDA) of $324 milion and a net profit after tax (NPAT) of $136 million.

That’s slightly ahead of consensus forecast of $323 million and $131 million, respectively.

“Our analysis from early Sep indicated that the 2021/22 ECA winter crop could be up to 28.5mmt based on Jan-Aug rainfall and historic ABARES revisions,” said Macquarie.

“This compares to the current ABARES forecast and our model estimate of 26.5mmt (similar to consensus).”

Beating consensus could push the Graincrop share price north of $7 a share, although buy the rumour, sell the fact could see profit takers jump in on the day of the results.

Positive outlook

But any price weakness may not last. Macquarie believes there’s more hay to be made as the sun keeps shining on Graincorp.

Actually, the positive sentiment is more to do with the rain than sun. The Bureau of Meteorology believes there is a 70% chance of La Nina over the coming months.

“La Nina events increase the chances of above-average rainfall for northern and eastern Australia during spring and summer,” explained Macquarie.

“Whilst still relatively early on, this could be supportive for the soil moisture profile leading into the 2022/23 winter crop.”

Motley Fool contributor Brendon Lau owns shares of Macquarie Group Limited. 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 Macquarie Group 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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