After a “clean” third quarter, TD Cowen analyst Michael Tupholme raised Aecon Group Inc. (ARE-T) to “buy” from “hold” previously, citing a “solid” growth outlook and “compelling” valuation.
“Concerns regarding ARE’s fixed-price legacy projects kept us cautious,” he said. “However, ARE’s recent quantification of maximum potential legacy project risks and a clean Q3/24 provide us considerable comfort. Meanwhile, a solid revenue growth outlook and ARE’s compelling valuation support our upgrade.”
“Despite very strong recent share-price performance, on an exConcessions and ex-legacy fixed-price project losses impact basis, ARE is trading at 6.1 times our 2025 adjusted EBITDA estimate. This represents a notable discount vs. its closest Canadian peer BDT-T (7.4 times our 2025E EBITDA), and vs. ARE’s broader construction peer group (average of 10.6 times 2025E EBITDA). With continued strong execution and legacy JV projects backlog run-off, we expect ARE’s valuation discount versus peers to narrow.”
Mr. Tupholme hiked his target to $35 from $23. The average is $28.45.