Various analysts initiated coverage of UL Solutions (ULS) on Tuesday, with the majority taking a bullish view of the safety science company.
Wells Fargo initiated the stock with an Overweight rating and $40 price target, describing the company as a "best-in-class industry leader in the testing, inspection, and certification (TIC) industry with tailwinds from: 1) Increasing product complexity, 2) Increasing regulations, and 3) Growth in its higher margin software business."
Citi started the stock at Buy with a $41 price target, saying it has "the opportunity to deliver accelerated growth within its all-important Industrial division." "At the same time, we see evidence that the Consumer division (>40% of 2023 revenue) has been cyclically under-earning, and see potential for a rebound," added the bank.
Analysts at William Blair started ULS at Outperform, noting it is a "well-established market leader" with a highly reputable brand. The firm believes the company will continue to drive strong organic and inorganic top-line growth in a market with significant barriers to entry.
ULS was started with a Buy rating and $40 price target at Stifel. "We believe ULS has a leading market position in the Industrial TIC areas (43% of revenue) and a solid market position in the Consumer TIC areas (44% of revenue)," said the firm. "We view UL Solutions as a moderate (but not very cyclical) organic revenue growth story, where there is margin expansion potential, and the ability to enhance the business through tuck-in acquisitions."
BofA noted the company's durable growth. The bank started ULS at Buy with a $42 target. "ULS offers durable and recurring (~45% of total) sales growth supported by secular megatrends, healthy and expanding margins, and a lean balance sheet," BofA stated.
Goldman Sachs was more cautious, initiating coverage of ULS with a Neutral rating and $39, 12-month price target. The investment bank explained: "While ULS has a comparable or better revenue growth and margin profile relative to peers, we believe it currently deserves a modest discount to peer valuations due, in part, to its lack of a public market track record and lower FCF conversion from EBITDA."