Bullish indicating open at $55-$60, IPO prices at $37
Investing.com - Morgan Stanley (NYSE:MS) raised its price target on Karooooo Ltd. (NASDAQ:KARO) to $53.00 from $43.00 on Thursday, while maintaining an Overweight rating on the stock. According to InvestingPro data, the company maintains a "GREAT" Financial Health score and has demonstrated consistent profitability with a robust 30% return on equity.
The 23% increase in price target reflects Morgan Stanley’s revised revenue and earnings estimates for fiscal years 2026 and 2027. The firm raised its FY26/27 revenue forecasts by 4% and 12% respectively, while earnings estimates were increased by 6% and 14%.
Morgan Stanley maintained its valuation methodology, applying a 4x EV/revenue multiple to its updated FY27 revenue forecast. The new price target implies a 13% upside potential for Karooooo shares, which currently trade at 4.7x FY26 estimated EV/Revenue. The stock currently trades at a P/E ratio of 27.75x, with InvestingPro analysis indicating the stock is fairly valued. Subscribers can access 6 additional ProTips and comprehensive valuation metrics through InvestingPro’s detailed research reports.
Two primary factors drove the price target increase: higher anticipated average revenue per user due to improving camera/video technology and Cartrack tag demand in South Africa, and a stronger ZAR:USD exchange rate assumption of 1:18 compared to the previous 1:19.5 rate.
The firm’s subscriber base projections remain similar to previous forecasts, with expectations of 2.3 million subscribers in FY25 growing to 2.97 million by FY27, while net cash increased from R193 million to R318 million in Morgan Stanley’s calculations. The company has maintained steady growth with revenue increasing 8.61% over the last twelve months, supporting its expansion trajectory.
In other recent news, Karooooo Ltd. announced a secondary public offering of 1.5 million ordinary shares held by CEO Isaias (Zak) Jose Calisto, priced at $50.00 per share, resulting in approximately $75 million in gross proceeds. The offering, which is expected to close on June 13, 2025, allows underwriters an option to purchase an additional 225,000 shares within 30 days. Karooooo will not benefit from the proceeds but will cover transaction costs, excluding underwriting commissions paid by Calisto. Following this offering, Calisto’s ownership in Karooooo will decrease, potentially to 57.27% if the additional share option is exercised. In other developments, Raymond (NSE:RYMD) James analyst Alex Sklar raised the price target for Karooooo to $58 from $51, maintaining an Outperform rating. This revision follows the company’s fourth fiscal quarter results, highlighting a 3% revenue upside and a 17% year-over-year growth in net new subscriber additions. The analyst emphasized the company’s accelerating organic subscription growth outlook for fiscal year 2026, expected to increase by 18% at the midpoint. Sklar also noted the potential for Karooooo to expand its market multiple, despite some risks related to its ambitious hiring plans for fiscal year 2026.
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