On Friday, UBS revised its stance on Goodman Group (GMG:AU) (OTC: GMGSF), downgrading the stock from Neutral to Sell, while increasing the price target to AUD31.71 from the previous AUD29.25. The adjustment comes as the firm acknowledges Goodman Group's strong earnings per share (EPS) growth potential, driven by its focus on data centre developments. Despite this positive outlook on the company's strategy, UBS has expressed concerns over the current market valuation.
The Goodman Group's stock is perceived to be trading at a premium, with market expectations for earnings growth that are unlikely to be significantly surpassed, according to UBS. This has led to the downgrade, as the firm believes the high expectations are already reflected in the stock's price. UBS has revised its forecast for the company's earnings, anticipating an average 5% increase from fiscal year 2025 to 2028.
The new price target reflects an 18 times development multiple, up from the previous 16 times. This change is in line with UBS's expectations of an approximately 11% compound annual growth rate (CAGR) for Goodman Group's operating earnings per share (OEPS) from fiscal year 2025 to 2028.
This forecast aligns closely with the consensus estimate of a 12% CAGR. However, UBS suggests that the current share price assumes a more optimistic scenario, with Goodman Group's stock trading at a 30 times price-to-earnings (P/E) ratio for fiscal year 2025.
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