Goodman share price charges higher following bullish broker note

Goodman shares are on form on Friday. Here’s why…

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Key points

  • Goodman shares are rising on Friday
  • A market rebound and a bullish broker note appear to be behind this
  • Goldman Sachs sees almost 30% upside for the company's shares

The Goodman Group (ASX: GMG) share price is on form on Friday.

In afternoon trade, the industrial property company’s shares are up over 3% to $19.51.

Why is the Goodman share price charging higher?

As well as getting a boost from the share market rebound today, the Goodman share price was given a lift from a broker note out of Goldman Sachs.

According to the note, the broker has initiated coverage on the company’s shares with a buy rating and $25.00 price target.

Based on the current Goodman share price, this implies potential upside of 28% even after today’s solid gain.

What did the broker say?

Goldman made the move due to its belief that Goodman is well-placed for growth in the coming years due to strong demand for industrial property.

It commented:

Our view of GMG is supported by a solid outlook for the Industrial sector more broadly, with a number of favourable fundamentals underpinning future long-term demand for industrial space (e.g., increasing e-commerce penetration and supply chain modernisation).

Given GMG’s preference to own, develop and manage high-quality industrial assets in key infill markets globally, we believe it is well-positioned to capture market rental growth, which when coupled with elevated investment demand for industrial assets will assist in contributing to AUM growth through increasing valuations (against a backdrop of rising rates).

What is the broker forecasting?

Goldman Sachs notes that Goodman has been growing its earnings at a strong rate in recent years. It is expecting more of the same this year and is tipping the company to outperform its guidance.

And while the broker suspects that its earnings growth will slow in the years to come, it still expects this to be at an above average rate.

GMG has developed a track record of beating initial growth guidance provided to the market and we expect GMG to deliver FY22 operating EPS growth of ~23% (vs. company guidance of 20%), largely driven by our expectation of a stronger contribution from developments and performance fee recognition. We expect above average near-term earnings momentum to continue, albeit at a slower rate and forecast an FY22-24 EPS CAGR of ~13% (vs. c.9% EPS growth over the past nine years).

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. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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