Will June be a good month for the Transurban share price?

The Transurban investment debate has plenty of moving parts. Here’s what the brokers are saying.

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Key points

  • Market sentiment and analyst sentiment are split on Transurban shares
  • While investors have rallied the share price to a series of new highs, the consensus of brokers remain on the fence 
  • In the last 12 months, the Transurban share price has flatlined and is the same as it was a year ago.

The Transurban Group (ASX: TCL) share price is falling today, currently down 1.93% at $14.23. However, it remains 0.57% in the green over the last month of trade.

There’s been somewhat of a tug-of-war at both ends of the Transurban investment debate in recent weeks, with brokers on each side of the fence chiming in with their outlook.

Meanwhile, in broad market news, the S&P/ASX 200 Industrials Index (ASX: XNJ) has glided down 1% from the open today, extending losses this year to date to 3%.

So what’s next for the toll road operator’s shares? Let’s see what the brokers are saying.

Consensus split on Transurban outlook

While market sentiment has pushed to bullish regarding Transurban, analysts remain split on its next moves.

Investors have rallied the Transurban share price from a low of $12.12 in February to its current levels, closing as high as $14.77 in that time.

However, analysts are split at 40% each for buy and hold calls on the stock, with the remaining 20% urging clients to sell, according to Bloomberg data.

Meantime, the Credit Suisse team recently downgraded its rating on the company to neutral from outperform.

Despite Transurban’s relatively stable and predictable cash flows, the broker reckons it lacks pricing power amid the latest inflation outlook.

That, and the company’s cost on its debt is an average floating 4%, meaning it is likely to rise as interest rates on corporate debt rise.

Rates sensitivity is likely to remain an issue for Transurban, Credit Suisse says, amid these higher rates. Estimates on debt refinancing increase “debt cost[s] by around 4%, around 10%, and 15% in FY23, FY24, and FY25 respectively”.

Meanwhile, analysts at JP Morgan remain constructive on the Transurban share price, gaining “increased comfort” from the company’s March 2022 traffic update.

“Although this rebound is in part due to economies reopening and mobility returning, some structural factors (including heavy/commercial vehicle resilience, private vehicles over public transport) are at play and likely to drive continued growth, in our opinion,” the broker said.

Unlike its counterpart at Credit Suisse, the JP Morgan team sees a high correlation in Transurban’s link to inflation, a bullish catalyst in the short-term:

We highlight TCL’s favourable concession profile (both tenure and terms) with escalators often rising at the higher of inflation or 4%. With inflation anticipated to breach circa. 5% for three quarters in CY22 with approximately two-thirds of TCL’s network raising tolls quarterly, we believe this is an incremental source of upside near term.

The consensus price target for Transurban is $14.19 per share, per Bloomberg data. At its current levels, the upside appears to be limited.

Transurban share price snapshot

In the last 12 months, the Transurban share price has flatlined and is the same as it was a year ago.

It is up by 2.15% this year to date and by 3% over the past six months.

Motley Fool contributor Zach Bristow 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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