Xero Ltd (ASX: XRO) shares are under selling pressure on Thursday.
Though according to the analysts at Macquarie Group Ltd (ASX: MQG), today's selling looks to be well overdone.
Shares in the S&P/ASX 200 Index (ASX: XJO) business and accounting software provider closed on Tuesday trading for $194.20.
Xero stock entered a trading halt yesterday pending a capital raise announcement to fund its US$2.5 billion (AU$3.8 billion) acquisition of United States-based payments platform Melio. Xero may also pay up to US$500 million in contingent payments to employees over three years.
That capital raise announcement was released before market open today.
And investors have responded by favouring their sell buttons.
As we head into the lunch hour, shares are changing hands for $183.78, down 5.4%.
Why is the ASX 200 tech stock taking a hit on its Melio acquisition?
As the Motley Fool reported this morning, Xero revealed that it has successfully raised US$1.2 billion (AU$1.8 billion) via the placement of some 10.5 million shares to sophisticated and institutional investors.
But with the new Xero shares being issued for $176 apiece, 9.1% below the price prior to Wednesday's trading halt, investors are pressuring the stock today.
Xero CEO Sukhinder Singh Cassidy, however, sounded thrilled with the result for the Melio capital raise acquisition. The acquisition is intended to spur the ASX 200 tech stock's ability to grow in the US. The US represents Xero's largest total addressable market (TAM) segment at US$29 billion.
"We're very pleased with the strong support we've received from both existing and new institutional investors for this placement," she said.
Cassidy added:
Melio presents an incredibly exciting opportunity for Xero, and we look forward to creating a market-leading accounting and payments offering that maximises value for our customers and supports our 3×3 strategy and US ambitions.
What does Macquarie expect now for Xero shares?
As mentioned up top, in a new report released this morning, Macquarie believes investors are making a mistake selling the ASX 200 tech stock today.
The broker maintained its outperform rating on Xero shares with a 12-month price target of $204.00 a share. That represents a potential upside of 11% from current levels.
"Melio improves XRO's ability to grow in the US, XRO's largest TAM segment at US$29 billon," Macquarie said.
The analysts said a medium-term risk for the company would be an inability to deliver on US growth. But they noted, " This acquisition sures up the 5-10 year growth story."
Reiterating its outperform rating on Xero shares, Macquarie stated:
Management is walking the walk, making data-driven decisions that invariably lead to better capital allocation outcomes. We have high conviction in >12- month story. However, with upcoming brand reinvestment, any downside from cost growth presents buying opportunity.
