On Monday, JPMorgan (NYSE:JPM) issued a downgrade for Goodman Group (GMG:AU) (OTC: GMGSF) stock, shifting the rating from Neutral to Underweight, though the firm raised its price target to AUD32.00 from AUD31.00. The adjustment comes as part of the Australian REIT August 24 Reporting Season Preview.
Goodman Group has demonstrated significant growth since highlighting its data center initiative in its third-quarter update of May 2023, with the company delivering a total return of 76% compared to 14% for the ASX 200 and 21% for the ASX 200 REITs during the same timeframe.
Goodman Group's strategic shift to focus on data center opportunities, aimed at leveraging the surge in demand driven by AI technologies, has been met with positive reception. The company boasts a robust and profitable data center pipeline, which has been the subject of detailed analysis in two deep dive reports by JPMorgan.
The firm acknowledges Goodman Group's attractive earnings outlook, forecasting a five-year earnings per share (EPS) compound annual growth rate (CAGR) of approximately 12%.
Despite the optimistic earnings forecast and successful strategy pivot, JPMorgan's downgrade reflects the stock's current trading level, which exceeds the newly set price target.
The strong share price performance has led to the reassessment of Goodman Group's stock rating. JPMorgan remains positive on Goodman Group's earnings prospects but sees the recent share price surge as a factor in the downgrade decision.
The price target increase to AUD32.00 is based on a roll-forward valuation to June 2025, indicating a slight adjustment in the firm's long-term valuation estimates for Goodman Group.
The stock has been trading above this revised target, prompting JPMorgan to advise a more cautious stance with the Underweight rating. This change in rating is meant to reflect the stock's performance relative to its current valuation as determined by the firm's analysis.
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