Why are Xero shares flying 12% higher today?

Xero Ltd (ASX: XRO) shares have soared higher in Thursday morning trade.

At the time of writing, the technology shares are up around 12% and changing hands at $79.66 apiece.

The increase means the shares have now climbed 29% over the past month, and have rebounded 42% from a multi-year low of $55.31 on the 1st of October.

There's still some way for the share to go until they recoup the losses shed this year. Xero shares are 29% lower for the year to date. They're also around 43% lower than 12 months ago.

Why are Xero shares rallying today?

The cloud accounting platform provider released its eagerly anticipated half-year FY27 results ahead of the market open this morning.

Its first-half FY27 revenue grew 46% (41% in constant currency) to NZ$1.7 billion. Its operating expense to revenue ratio of 68.9%, improved by 8.1 percentage points. 

Adjusted EBITDA, which excludes one-off and non-cash revaluation impacts, increased 3% to NZ$362 million. 

Xero said that its growth was tempered by the incorporation of Melio (in H1 FY27 only). 

On a pro-forma basis, adjusted EBITDA was up 23%. This translates to free cash flow of NZ$238 million, up 32% on a pro-forma basis. 

Xero said that the result was driven by strong customer growth and average revenue per customer (ARPC) expansion across all markets and continued payments growth.

The company also announced an on-market buyback program of up to NZ$1 billion, which will be completed over the next 12 months.

The results are impressive, but it looks like investors are particularly thrilled about Xero's upgraded guidance figures.

Xero is now guiding full-year operating revenue between NZ$3.77 billion and NZ$3.83 billion. This is up significantly from NZ$3.62 billion to NZ$3.73 billion previously. 

Adjusted EBITDA is expected to be between $880 million and $920 million. This is up from previous guidance of $860 million to $920 million. 

What do brokers tip next for Xero shares?

I expect analysts to revise their forecasts on Xero shares in the coming days, after they've digested the latest results.

But at the time of writing, TradingView data shows the majority (12 out of 13) have a buy/strong buy rating on the shares. One rates the stock as a hold.

The average target price currently sits at $108.33, which implies around a 36% upside for Xero shares at the time of writing. The maximum $170.48 target price implies the shares could jump another 113%.

The post Why are Xero shares flying 12% higher today? appeared first on The Motley Fool Australia.

Motley Fool contributor Samantha Menzies has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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