On Wednesday, RBC (TSX:RY) Capital adjusted its financial outlook for Summit Materials (NYSE:SUM), a manufacturer and supplier of construction materials. The firm increased the stock price target to $44.00 from $39.00, while retaining a Sector Perform rating on the stock.
The revision comes after Summit Materials confirmed its full-year 2024 guidance and long-term targets, with a particular focus on improving margins. The company aims to achieve an EBITDA margin of over 30% within the next five years.
Moreover, Summit Materials has increased its projected synergies from the Argos acquisition to $130 million, up from the previous estimate of over $100 million. Of this, $80 million is expected to be realized in the first two years, a significant increase from the initial $50 million forecast.
RBC Capital's analyst noted that the company's recent commentary aligns with market expectations, though the increased synergies provide a stronger buffer for the 2024 fiscal year guidance. The analyst emphasized the importance of execution in margin improvement for long-term value creation and potential multiple expansion.
The new stock price target of $44 is based on a 10 times multiple of the estimated EBITDA for the fiscal year 2024, an increase from the prior 9 times multiple, which also implies an 8.3 times multiple for the fiscal year 2025 estimated EBITDA.
Summit Materials' strategic focus on margin enhancement and the raised synergy estimates from the Argos integration are key elements highlighted by RBC Capital in its assessment. The firm maintains its Sector Perform rating, indicating a neutral outlook on the stock's performance relative to the broader market sector.
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