The Australian Federal Election is almost here. The experts at Macquarie are bullish about G8 Education Ltd (ASX: GEM) shares because of the outlook for the sector.

Macquarie describes G8 Education as a childcare centre operator that provides developmental and educational childcare services, mainly in Australia. It recently changed from its historical path of growth of brownfield acquisitions, it's now focused on greenfield (new) sites.

The G8 Education share price has seen plenty of volatility over the past 12 months, as the chart below shows.

Let's have a look at how optimistic the broker is about the business.

Outperform rating on G8 Education shares

Macquarie currently has an outperform rating on the business. That's despite a recent softening of occupancy.

As of 20 April 2025, year-to-date occupancy of 64.1% was down 3% year over year, which was a further deterioration from the 1.9% decline at 16 February 2025.

Weaker occupancy has been driven by higher cost of living pressures, the later Easter holiday period and aggressive promotional activity from competitors.

However, G8 Education has pointed out some occupancy 'green shoots' appearing with enquiry levels and family engagement improving from March. Macquarie expects enrolments will start improving in May and is forecasting that the ASX share's 2025 first half occupancy will end down 2.5% year over year.

Despite that, the company is confident of delivering earnings growth in the first half of 2025. The weaker occupancy can be offset by controlling variable costs and further procurement benefits. Macquarie is forecasting operating profit (EBIT) growth of 1.2% for the first half.  

Why the optimism about the childcare stock?

There are a few reasons why Macquarie is optimistic about G8 Education share.

The broker pointed out that G8 Education is "cautiously optimistic" about the 2025 result. Management are expecting favourable economic tailwinds to help ease cost-of-living pressures and that could lead to an increase in childcare participation.

The second half of 2025 is expected to benefit from three things.

First, an easing of inflation.

Second, further interest rate cuts.

Third, the increase in the childcare subsidy.

Macquarie expects the abolishment of the activity test on 1 January 2026 will also be supportive for occupancy in the 2026 calendar year and beyond. The broker suggested this could be better than the market is expecting, with most childcare providers yet to quantify the potential uplift. The government has estimated that 66,700 families will benefit, with more than 100,000 families eligible for additional care.

The broker said:

GEM's cost base and footprint is being optimised with growth potentially back on the agenda beyond CY26. GEM will benefit from recent government legislation, and we expect LT [long-term] the sector will continue to receive bipartisan funding support, albeit via different policies.

G8 Education share price target

The broker has a price target of $1.53 on the childcare business. That implies the broker thinks there's a possible rise of close to 20% in the next year.

Macquarie predicts that G8 Education could generate 9.9 cents of earnings per share (EPS) in FY25. That would mean the business is trading at 13x FY25's estimated earnings. EPS is then predicted to rise by more than 10% in FY26.