Southern Cross Electrical Engineer Ltd (ASX: SXE) shares have been strong performers over the past 12 months.
During this time, the ASX stock has risen approximately 140%.
The good news is that the team at Bell Potter believes there are more gains to come from the specialised electrical provider's shares.
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What is the broker saying about this ASX stock?
Bell Potter notes that Southern Cross Electrical Engineering has announced a number of major contract wins along with a trading update and equity raising.
The former includes contracts with NextDC Ltd (ASX: NXT) and Rio Tinto Ltd (ASX: RIO). It said:
Three major contracts were awarded across the Data Centre and Resources sectors valued at over $150.0m. These include: 1) a Limited Letter of Authorisation by Multiplex Constructions Pty Ltd to immediately commence initial electrical and communications works on the first stage of NEXTDC's S4 Data Centre in Horsley Park, NSW; 2) a contract by a major data centre operator to supply LV switchroom skids for a facility in Western Sydney; and 3) a Master Construction Agreement for Electrical, Instrumentation and Controls works from Rio Tinto.
The broker was also pleased to see the company upgrade its earnings guidance for FY 2026. It adds:
Strong contract delivery in 2H FY26-to-date has prompted the company to upgrade FY26 EBITDA guidance from >$72.0m to >$75.0m (BPe $72.5m; VA $72.5m). In addition, SXE has issued initial FY27 EBITDA guidance of >$100.0m (BPe $79.1m; VA $80.4m), representing a 33% uplift on the upgraded FY26 EBITDA estimate driven by the contract awards mentioned above and expected near-term award opportunities in the data centre sector and other industries.
Valuation boosted
According to the note, Bell Potter has responded to the update by retaining its buy rating on the ASX stock with an improved price target of $5.40 (from $3.70).
Based on its current share price of $4.02, this implies potential upside of almost 35% for investors over the next 12 months.
In addition, a fully franked 2.1% dividend yield is expected over the period.
Commenting on its investment thesis, Bell Potter said:
Our Target Price lifts to $5.40/sh (up from $3.70/sh), given a more optimistic mediumterm revenue growth outlook, underpinned by rising investment momentum in the Data Centre and BESS construction markets. Our upgraded Target Price implies a NTM PE of 27.9x (41% premium to the peer group). This premium is justified given the company's strong prospects of delivering acquisition accretion in the near-term.
