Xero share price has 19% upside potential, top brokers say

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Shares of Xero Ltd (ASX: XRO) have jumped from the open today and now rest at $87.18 apiece.

The Xero share price has struggled in 2022 and having booked extensive losses since trading resumed in January.

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Brokers are bullish on Xero

Despite the ASX tech stock’s lacklustre performance this year to date, analyst sentiment appears to be tilted towards the upside for Xero.

JP Morgan identified its reasoning for Xero in a recent note, stating the company “has proven its credentials in the ANZ market and is now looking to replicate its model in its international markets”.

The JP Morgan team added:

In addition, the company is embarking on a ‘platform’ strategy that is expected to lead to higher ARPU [average revenue per user] and growth in LTV [loan-to-value].

We rate Xero overweight with the stock trading below our price target [$97/share].

Meanwhile, around 59% of brokers covering Xero have it rated as a buy right now, whereas around 18% have it rated as a hold, according to Bloomberg data. The remaining coverage urges clients to sell Xero shares.

Within this group, the consensus price target is $100.97 per share, offering around 19% upside potential should the Xero share price surge to that mark.

But the company needs “big customer growth” to first get there, in the opinion of Bloomberg Intelligence senior equity analyst Matt Ingram. He wrote:

Xero needs to sustain its 20% plus 2019-22 customer growth and lift ARPU, while controlling costs to reach a decent level of profit.

ARPU is the key driver; International’s NZ$358, well below QuickBook’s NZ$783 outside the US, needs to improve outside Australia.

Xero also needs to sustain strong subscriber growth outside the US. Operating leverage may boost operating income, but investment will curb profit.

In the last year of trade, the Xero share price has clipped a 34% loss, after heading south a further 6% this past single month.

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