Analysts at Bell Potter are feeling bullish about one leading ASX 200 tech stock.
So much so, it has just upgraded this stock to a buy rating this morning.
Which ASX 200 tech stock?
The stock in question is REA Group Ltd (ASX: REA), which is the owner and operator of the popular realestate.com.au website.
This is the clear leader in the industry, reporting an average of 11.2 million monthly unique visits during the third quarter.
And those people would visit more than once, with REA Group's realestate.com.au website averaging at total of 130 million monthly visits. This is 4.1 times more visits than the nearest competitor each month on average.
Bell Potter appears to believe this positive form will have continued in the fourth quarter, setting up the ASX 200 tech stock to deliver a strong full year result this week. It commented:
Following recent industry data releases we have reviewed our FY24/25 forecasts and anticipate a strong FY24 performance at the result on 9th August, driven by potential listings growth above REA commentary for a 5-7% range (BPe: 8%) and positive geo mix (BPe: 2.5%) from outperformance in key Syd/Mel markets. We expect 2% increase in revenue to $1,468m (Bberg consensus: $1,443m), and a 4% increase in EBITDA to $809m (consensus: $813m) incorporating 18.5% opex growth and the midpoint of guidance for share of associate losses. Our revised estimates for FY24 EPS (BPe: 352cps) and DPS (BPe: 193cps) are in-line with consensus following upgrades of 8%/4%.
Time to buy
This morning, the broker has upgraded REA Group's shares to a buy rating with an improved price target of $218.00 (from $203.00). This implies potential upside of over 14% for the ASX 200 tech stock.
In addition to the above, Bell Potter highlights that REA Group has an economic moat that is difficult to replicate and sees value emerging from its shares. It concludes:
We upgrade to a Buy recommendation following the recent pullback, model roll forward to proportionally account for FY26, and adjustment in our prev. equal weighted valuation to 40% EV/EBITDA, 40% SOTP and 20% DCF. We prefer REA due to its large audience and network effect, generating pricing power and an economic moat that is difficult to duplicate. REA's continues to entrench its market leader position through a virtuous free cash flow/platform re-investment cycle which is returning 30%+ on invested capital. We see some relative value emerging end-FY25 with REA trading on forward looking discounts to current TTM multiples.
