On Monday, Oppenheimer maintained an Outperform rating on Arcosa (NYSE: NYSE:ACA), while increasing the shares target to $105 from the previous $100.
The firm has recognized significant changes in the company's structure due to recent acquisitions and divestitures, which have positioned Arcosa as a company with higher growth, higher margins, and reduced cyclicality.
The Construction Products division, which includes aggregates and construction materials, now accounts for approximately 65% of the pro forma EBITDA. Oppenheimer has identified roughly $75 million in what it views as understated EBITDA for Arcosa. The firm estimates that the mid-cycle Barge EBITDA would be around $70 million, compared to the $47 million expected in 2024.
Additionally, the existing backlog in the Wind Towers segment is anticipated to generate an EBITDA of $88 million annually, in contrast to the $35 million projected for 2024.
The adjustment in the price target reflects an analysis of the company's earnings potential. Arcosa's stock currently trades at 11.4 times and 10.3 times the estimated EBITDA for 2024 and 2025, respectively.
These figures include the assumptions that the Stavola acquisition and the Steel Components divestiture will be finalized in the fourth quarter of 2024.
However, with the adjusted EBITDA expectations for the Barge and Wind Tower segments, the trading multiples could be lower at 10.4 times and 9.5 times EBITDA, respectively.
Oppenheimer's revised price target of $105 reflects confidence in Arcosa's ability to achieve these improved financial outcomes. The analysis points towards a strong performance in the company's core sectors, which is expected to contribute to its growth trajectory and valuation in the market.
In other recent news, Arcosa Inc. has reported strong financial results for the second quarter of 2024, with record quarterly revenues increasing by 14% and adjusted EBITDA increasing by 31%.
The company has also announced the pricing of a private offering of $600 million in senior notes due in 2032, which is part of the funding strategy for its $1.2 billion acquisition of the construction materials business from Stavola Holding Corporation. The acquisition is anticipated to close by August 26, 2024.
In addition to this, Arcosa has announced its intention to secure a senior secured Term Loan B Facility worth up to $700 million, maturing in 2031, to fund the Stavola acquisition. The company has also divested its steel components business to Stellex Capital Management, a move expected to enhance the growth of the acquired companies.
Loop Capital has increased its stock price target for Arcosa Inc. shares to $110, up from the previous $95, while maintaining a Buy rating on the stock.
This decision follows Arcosa's announcement of a raised EBITDA guidance, the acquisition of Stavola, and the divestiture of its steel components business. These recent developments underline Arcosa's strategic focus on deleveraging, organic growth, and efficiency improvements.
InvestingPro Insights
As Oppenheimer maintains a positive outlook on Arcosa, real-time data from InvestingPro supports the firm's analysis of the company's potential for growth and improved financial performance. Arcosa's market capitalization stands at $4.08 billion, and the company's P/E ratio is currently at 27.71, indicating investor confidence in its earnings capacity. The company's revenue has grown by 8.89% over the last twelve months as of Q2 2024, showcasing its ability to expand its financial base in a competitive market.
InvestingPro Tips highlight that Arcosa's liquid assets have surpassed its short-term obligations, providing a cushion for operational flexibility. Additionally, the company operates with a moderate level of debt, which may offer a balance between leveraging opportunities for growth and maintaining financial stability. With analysts predicting profitability for the current year and the company having been profitable over the last twelve months, these factors may contribute to the robust financial health of Arcosa. For investors seeking more in-depth analysis, InvestingPro offers a total of 7 additional tips on Arcosa, accessible through their platform.
As the company heads towards its next earnings date on October 30, 2024, investors may keep an eye on the fair value estimates, which analysts set at $108, compared to the InvestingPro fair value of $76.17. This discrepancy may warrant further investigation by those interested in the company's stock. With these insights, Arcosa's current and potential investors can make more informed decisions aligned with the latest market data.
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