On Wednesday, Citi adjusted its stance on Fortrea (NASDAQ:FTRE), moving the rating from Buy to Neutral and reducing the price target to $23.00 from the previous $30.00. The stock, currently trading at $21.15, has experienced significant pressure, declining nearly 11% in the past week alone.
According to InvestingPro data, Fortrea's shares are now trading 48% below their 52-week high of $41.02. The decision comes amid growing uncertainty in the current market environment, which has affected the company's business-to-business (B2B) outlook for the second half of the year and the management's optimistic perspective on first-quarter bookings.
The analyst acknowledged that Fortrea's B2B ratio of approximately 1.23x in the third quarter surpassed expectations. While the backdrop for Clinical Research Organizations (CROs) has been unpredictable, InvestingPro analysis reveals that despite current challenges, analysts expect the company to achieve profitability this year, with an EPS forecast of $0.53 for 2024.
The company currently generates $2.98 billion in annual revenue, though it trades at a notably high EV/EBITDA multiple of 115x. Concerns were raised about the potential for existing bookings to be delayed or for ongoing trial cancellations due to futility, especially in a shaky regulatory landscape.
Fortrea, being less established in the market compared to its larger counterparts, faces heightened risk in these uncertain times. The analyst pointed out that the company's smaller scale could mean that a rise in cancellations could significantly impact its business operations.
While the firm recognized the possibility of Fortrea being a merger and acquisition (M&A) target, it expressed the belief that there isn't substantial upside to warrant continued support at this time. Consequently, Citi has chosen to adopt a more cautious approach and step back to a neutral position on the company's stock.
In other recent news, Fortrea has been the focus of several analyst actions. Baird recently downgraded Fortrea from Outperform to Neutral and lowered the price target to $25, citing the company's sudden cancellation of two conferences and a planned non-deal roadshow. Despite the company's current unprofitability, analysts expect Fortrea to achieve profitability this year.
On the other hand, Baird maintained an Outperform rating on Fortrea while reducing the price target to $28.00. This followed Fortrea's Q3 earnings report, which showed a 5.4% decrease in year-over-year revenue to $674.9 million, but a strong book-to-bill ratio of 1.23 and a 6.2% growth in backlog to $7.6 billion.
Similarly, TD (TSX:TD) Cowen maintained a Hold rating on Fortrea but increased the stock's price target to $25, reflecting a positive outlook on the company's future business opportunities.
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