ARE stock wins price target raise at Paradigm

Ahead of the company’s second quarter results, Paradigm Capital analyst Alexandra Ricci has raised her price target on Aecon Group (Aecon Group Stock Quote, Chart, News, Analysts, Financials TSX:ARE).

In a research update to clients July 2, the analyst maintained her “Buy” rating while raising her price target on ARE from $17.80 to $20.00, implying a return of 43% at the time of publication.

The analyst explained the reasoning behind her target hike.

“In our view, the Q2/24 charges related to CGL and remaining legacy projects are signs that we are nearing the end of the project overhang. We a moving toward a period of better revenue visibility as several progressive contracts are not yet reflected in backlog (H2 timing),” she wrote. “Today’s sell-off looks to be pricing in much of the negative noise around Q2 and legacy charges, which could create a low point for the stock when the company reports headline results. The cash charge related to the legacy projects is ~$1.75/sh; shares have sold off ~$2.50 post the news. We are rolling forward our valuation to 2025 to reflect the normal course of business; as a result, our target price increases to $20.00 (from $17.80). We have lowered our target multiple to 5.0x (from 5.5x) EBITDA, reflecting the current risk of additional charges as two of the three projects are expected to reach completion in H2/24. We still expect margin and multiple expansion to come following completion. We maintain our Buy rating as we continue to take a long-term view.”

Ricci thinks ARE will post EBITDA of $26.0-million on revenue of $4.43-billion in fiscal 2024. She expects those numbers will improve to EBITDA of $234.0-million on revenue of $4.51-billion in fiscal 2025.