Key Points:
- Nufarm's share price surged over 20% this week following a positive quarterly update
- Several brokers have upgraded their price target on its shares despite rising costs
- This is because price increases and revenue growth are more than offsetting inflation risks
The party may not be over for the Nufarm Ltd (ASX: NUF) share price even after its big surge this week.
Leading brokers are tipping further upside for the seed and agri products company after its shares jumped 26% since Monday to hit $5.52.
The catalyst for the Nufarm share price was its quarterly results, which were released yesterday.
Several brokers were impressed enough to upgrade their price targets on the shares even as management warned of rising costs.
Brighter outlook for the Nufarm share price
One broker that lifted its valuation on the Nufarm share price post the update was Macquarie Group Ltd (ASX: MQG).
"NUF is experiencing upward pressure on costs due to raw material costs and global logistics challenges but this is being offset by increased revenues (ie price)," said Macquarie.
"NUF is increasingly confident of achieving revenue and earnings growth for the year. Earnings to be significantly weighted to 1H (saw same last year)."
Pricing power important in this climate
The ability of Nufarm to pass on rising costs is a desirable characteristic in the current climate. Inflationary pressures are building and the ASX shares that can outperform in such an environment are those with pricing power.
Macquarie increased its 12-month price target on the Nufarm share price to $6.29 from $5.45 a share. The broker also reiterated its "outperform" recommendation on the shares.
Planting seeds for extra growth
Meanwhile, Citigroup was another to up its price target on Nufarm by $0.50 to $6.50 a share.
The broker confidence in Nufarm's ability to grow earnings and sales over the next five years improved after the update.
But its valuation may prove to be conservative as Citigroup did not include the upside from Nufarm's seed technology business.
"NUF is also aiming for ~$600 to $700 million in revenues for its Seed Technologies business by FY26e which, while not reflected in CitiE or current consensus forecasts, provides an insight into the potential sales quantum for high-growth, early-stage products," said Citi.
The broker repeated its "buy" recommendation on the Nufarm share price.
How much higher can the Nufarm share price go?
Bell Potter also upgraded its target price on Nufarm following the quarterly update. It increased the target by 18.5% to $6.40 a share.
"There is no change to our Buy rating," said Bell Potter.
"If NUF can execute on its FY26e targets then it has the scope to become a $565-$635m through the cycle EBITDA business, with a higher exposure to less seasonal elements of the value chain through participation in Omega 3 and Carinata returns post farmgate."
