Is the Megaport share price back on track after a broker upgrade?


The Megaport Ltd (ASX: MP1) share price jumped 3.27% on Thursday to end the day’s trading at $8.84.

Megaport shares seem to have benefitted from an ASX tech tailwind started by a positive session from its peers listed on the Nasdaq Composite (NASDAQ: .IXIC) overnight. 

On top of that, broker Jefferies initiated an upgrade in the Megaport share price target from $5.94 to $9.60

Before diving into the performance of the NASDAQ and the broker upgrade, here is a quick recap of Megaport’s full-year financial results, which the company released on Tuesday.

Megaport FY22 recap

Highlights of the Megaport FY22 results included: 

Revenue jumped 40% from $78 million to $109 million Net loss improved by 12% from ($55 million) to ($48.5 million) Operating cash flow went backwards from ($8.6 million) to ($9.8 million)No dividend declared

The Megaport share price soared 10% on the back of the results on Tuesday, but fell almost 5% on Wednesday.

Broker Jefferies liked the financial results, pushing up its price target to $9.60 from $5.94. 

According to Thomson Reuters, Jefferies said, “This result proves that management is capable of delivering strong operating leverage.”

While these set of results indicate an improvement in profitability, I would not consider it to be a strong display of operating leverage. 

Investors ought to be mindful of the consistent decline in net income since the cloud networking company listed in late 2015. 

I would prefer to see more evidence of improvement in profitability before putting it in such a basket.

The broker upgraded its guidance for FY23 and FY24 revenue by 9% and 14% respectively. 

Jefferies also flagged risks in the tightening of IT expenditure in a recession and higher capital expenditure (capex) due to inflation and supply chain issues. 

Despite noting these risks, Jefferies has maintained a “hold” rating. 

NASDAQ rallies overnight 

The NASDAQ includes tech giants like Apple (NADSAQ: AAPL) and Microsoft (NASDAQ: MSFT). It rose by 2.9% yesterday, bringing its gains to 20.7% from lows recorded in June. 

According to the Financial Times, consumer prices in the US rose 8.5%, falling below economists’ forecasts of 8.7%. Further, there was no increase in inflation in July as opposed to a 1.3% monthly rise in June. 

This might partly explain the recent rally on the NASDAQ and the flow-on effect on tech and growth stocks on the ASX.

Some notable tech stocks like Life360 Inc (ASX: 360) and Block Inc (ASX: SQ2) experienced jumps of 13% and 8% today respectively. 

The overall equities market has been engulfed in a sea of red this year and the Megaport share price is no exception. 

Year to date, the Megaport share price has more than halved, dropping by 53%. However, in the last month, the Megaport share price has rallied to jump by nearly 44%. 

The S&P/ASX 200 Index (ASX: XJO) is down 7% year to date but has clawed its way back in the last month to post a gain of 7%. 

Megaport suffered from the big tech and growth sell-off this year. The Megaport share price is showing signs of recovery, so it could be worth monitoring over the short to medium term. 

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