RE:analysts targetsHere are the specifics. GLTA
National Bank Financial analyst Maxim Sytchev saw the second-quarter 2024 results from AtkinsRealis Group Inc. as “ok relative to heightened expectations,” however he cautioned “we are moving towards a less volatile future.”
“Organic growth was again strong, but overall expectations continue to rise with the share price,” he said. “Two years ago, this would have been an amazing quarter but with Street forecasts having risen materially as Atkins derisked its business model, this looks solid but akin to Q1/24 – good quarter on high expectations, especially for a stock that’s up 31 per cent year-to-date pre-quarter (vs. TSX up 6 per cent YTD).
“Stepping back for a second, however, the valuation remains undemanding and in the world of 15 times plus EV/EBITDA metrics, investors will likely continue to be attracted to 9.9 times EV/EBITDA on 2025E. Management reiterated FCF projections for the year, and we are modeling $204-million next year; this works out to a 2.8-per-cent FCF yield ex concessions; not great but trajectory should continue improving. This is the biggest sentiment lever, in our mind, for the next level of re-rating.”
On Friday, the Montreal-based firm, previously known as SNC-Lavalin Group Inc, reported consolidated revenue for the quarter of $2.364-billion, exceeding the Street’s forecast of $2.293-billion by 3 per cent and also ahead of Mr. Sytchev’s $2.283-billion estimate. Consolidated EBITDA of $202.7-billion was 6 per cent below the consensus expectation ($216-million) as well as the analyst’s projection ($223-million) due to “more pronounced (than expected) EBIT losses in LSTK projects (commissioning costs rose to bring remaining projects to completion) and higher Corporate SG&A (revised estimates higher on long-term employee incentives — exact figure was not provided).”
“We slightly raised our estimates for H2/24 on the back of more pronounced Nuclear growth as backlog has doubled year-over-year and momentum continues to build with new awards,” he said. “We expect slight margin contraction for Nuclear year-over-year and vice-versa for Engineering services (with double-digit growth seen so far moderating in 2025) as per company’s new guidance. We model $144-million in FCF in 2024 with operating cash flow at $400-million that is weighed towards H2/24 as we anticipate LSTK drags to be less severe relative to this quarter.”
Reaffirming his “outperform” recommendation for the company’s shares, Mr. Sytchev bumped his target to $68 from $67. The average target on the Street is $67.45.
Elsewhere, seeing its relative valuation as “increasingly attractive,” BMO’s Devin Dodge upgraded AtkinsRalis to “outperform” from “market perform” with an unchanged $62 target.
“While Q2/24 results demonstrated that progress towards 2027 targets in Engineering Services may not be linear, demand prospects appear to remain favourable,” said Mr. Dodge. “We are encouraged by a more balanced approach to growth for the division, and there are multiple initiatives underway to improve margins. Near-term growth for the Nuclear segment is accelerating faster-than-previously expected and there is improving visibility into a doubling of segment revenues over the intermediate term. Meanwhile, valuation has pulled back and we think provides an attractive entry point into the stock.”
Others making changes include:
* RBC’s Sabahat Khan to $70 from $69 with an “outperform” rating.
“We are surprised by [Friday’s] negative 6-per-cent share price reaction to AtkinsRalis’ Q2 results, which we believe reflected good progress across the go-forward businesses (Engineering + Nuclear),” said Mr. Khan “While headline figures were mixed vs. consensus (top-line ahead, Adjusted EBITDA slightly below because of a larger-than-anticipated LSTK loss + impact of LTIP), results from the AtkinsRalis Services (12.0-per-cent organic growth in Engineering) and Nuclear segments (31.5-per-cent year-over-year EBIT growth; see below) reflect solid progress (on an absolute and on a relative basis when compared to peers). Margins were also in line with Street expectations. While 2024 guidance for Engineering Services Regions organic growth of 8-10 per cent was reiterated, our view is that this likely reflects a conservative stance (especially given the strong backdrop highlighted on the call). Looking ahead, AtkinsRalis is well positioned given a supportive outlook for its Engineering business (favorable backdrop + peer-leading organic growth), and a very strong growth outlook for its Nuclear segment (31.5-per-cent year-over-year EBIT growth in Q2, guiding for full year top-line growth of 30-35 per cent). This strong outlook combined with the continued valuation discount vs. peers provides for a favorable setup, in our view.”
* CIBC’s Jacob Bout to $70 from $68 with an “outperformer” rating.