Christopher Adams for the New Zealand Herald writes: Xero boss Rod Drury is disappointed with the sell recommendation Craigs Investment Partners has slapped on the company's stock and he says some financial analysts are overestimating the strength of the Kiwi firm's main competitor in the United States, Nasdaq-listed Intuit.
Initiating coverage this week, Craigs said Xero's current valuation was pricing in "a more rapid take-off in US growth than we think is likely".
The brokerage has put a 12-month target price of $18.90 on Xero shares, which closed down 14c yesterday at $23.51, 47.7 per cent below the $44.98 record high they hit in March.
"We're a bit disappointed with [Craigs'] assessment," Drury says.
He reckons US-based analysts at Deutsche Bank, which holds a 49.9 per cent stake in the New Zealand brokerage, had some input into the Xero report which was authored by Stephen Ridgewell and Joshua Dale, who are both members of Craigs' Auckland-based research team.
US analysts, who have been covering Intuit for many years, have a tendency to overrate the California-based firm's hold on the US accounting software market, Drury says.
"What we've got to do in the US is prove that we can beat Intuit and our track record is very good - we've beaten them in New Zealand, Australia and the UK."
Xero estimates it has a potential customer base of 29 million small and medium-sized businesses in the US.
At March 31 the company had 18,000 US clients, a roughly 1 per cent share of the country's small business market.
Mark Lister, Craigs' head of private wealth research, says it is common for analysts to talk to overseas-based colleagues - who cover similar stocks - in the course of their research but the Xero report is "our analysts' view".
"CEOs should focus on running and growing their businesses, rather than worrying about analyst recommendations and reports," Lister adds.
First NZ Capital has an outperform recommendation on Xero, while Forsyth Barr has an underperform rating on the stock.
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