Shares in Zip Co Ltd (ASX: ZIP) surged more than 18% on Thursday after the company reported its full-year results, begging the question, are the shares now fully priced?
While the shares jumped significantly on Thursday, they are 9.3% lower over a 12-month period after pulling back 7.2% on Friday morning to $2.83.
The analysts at Macquarie have had a look at the results and have come up with an outperform rating on the stock, and a bullish share price target which I'll get to shortly.
The team at UBS are also bullish on the company.
Before we get to what the analysts are saying, let's look at what Zip announced this week.
Image source: Getty Images
Large jump in earnings underpinned Zip share price surge
The buy now, pay later service provider on Thursday announced record cash EBTDA of $268.9 million, up 57.9% on the previous year.
Total transaction volume (TTV) grew to $16.7 billion, up 27.2%, while the number of merchants on Zip's platforms increased 13.8%.
Zip Chief Executive Officer, Cynthia Scott, said regarding the result:
Consistent execution has built the platform to deliver our next phase of growth and innovation. In FY26, we exceeded our targets with record cash earnings of $268.9m, up 57.9%, underpinned by material cash earnings growth in both markets. We maintained strong unit economics, expanded operating leverage and reinforced the value of our differentiated business model. Our focus on exceptional customer experiences is translating into stronger engagement. In the US, we achieved more than 40% growth in both TTV and revenue for a second consecutive year while adding new customers at scale. In ANZ, we returned to revenue and Australian receivables growth, led by the continued success of our Zip Plus product.
Ms Scott said Zip was targeting cash earnings of $340 million in FY27, which would be a 26% increase.
Brokers like the look of Zip shares
UBS said in its note to clients that the outlook for the current year was better than expected, providing comfort around the defensive qualities of the buy now, pay later business model through slowing economic times.
UBS said:
Whilst macro remains key uncertainty into FY27, we have increased confidence around Zip's defensive quality and ability to drive customer growth and transaction frequency. Our US TTV growth forecast of +30% in FY27 is comprised of 9% customer growth and 19% TTV/customer growth, which we view achievable.
UBS has a price target on ZIP shares of $4.70.
Macquarie said "Zip's outlook remains attractive as management executes the market opportunity in the US, supported by performance in AU''.
Macquarie has a price target of $3.50 on Zip shares.
Zip is valued at $3.8 billion.
