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Key points
- Goldman Sachs thinks REA shares are a buy ahead of earnings season
- The broker believes the property listings company could smash consensus estimates
- Goldman's price target implies 23% upside
The REA Group Limited (ASX: REA) share price is up 1% to $136.50 on Friday morning.
One leading broker that believes the property listings company's shares could keep on rising is Goldman Sachs.
What did the broker say about the REA share price?
According to a note this morning, Goldman Sachs has retained its buy rating but trimmed its price target on the company's shares to $168.00.
Based on the current REA share price, this implies potential upside of 23% for investors over the next 12 months.
The note reveals that Goldman is expecting a strong result from REA next month when it releases its half year update. In fact, its analysts suspect that the company will outperform the market's expectations for both revenue and earnings.
Goldman commented: "We expect a very strong result, with 1H22 Rev/EBITDA/NPAT of A$592mn/A$373mn/A$227m [growth of 37%, 29%, and 32%], well ahead of consensus (+4%/+7% Rev/EBITDA vs. Visble Alpha Consensus Data)."
A key driver of this outperformance is the broker's expectation for a particularly strong second quarter.
The broker explained: "This implies 2Q Rev/EBITDA growth of +40%/+30% vs. +35/+27% in 1Q, given improved listings (+21% GSe vs. +11% in 1Q)."
And while Goldman suspects that the second half will be softer, potentially due to the Federal Election, it still expects another solid full year result from the realestate.com.au operator.
Goldman has pencilled in revenue of $1,153.5 million and EBITDA of $685.8 million for FY 2022. This equates to year on year growth of 24.3% and 21%, respectively.
What else will be on watch?
There are a number of other items that Goldman has suggested investors focus on.
It explained: "Key focus points: 1) Depth uptake, with positive 1Q trends, 2) International momentum (Move, India, PropertyGuru); and 3) cost performance, given we expect higher opex than prior guidance (high single digit operating cost growth excl. MOC/Elara), given supportive near-term macro."
