Deutsche Bank cuts Fortrea target to $23, maintains hold By Investing.com

On Monday, Deutsche Bank adjusted its outlook on Fortrea (NASDAQ:FTRE), a company listed on the NASDAQ stock exchange. The firm’s analyst has reduced the price target for Fortrea shares to $23.00, down from the previous target of $28.00, while retaining a Hold rating on the stock.

The analyst’s commentary highlighted that Fortrea’s future hinges on its execution capabilities, with potential stock movement being influenced by either an end to negative estimate revisions or a significant event. The company has indicated that it will provide more details about its 2025 plans later in the year.

It has set expectations for year-over-year revenue to remain flat, assuming a book-to-bill ratio of 1.20x in future periods and an EBITDA margin between 11-12%, a decrease from the earlier target of 13%.

Fortrea’s second half of 2024 is anticipated to rely heavily on net service fee growth for EBITDA expansion. This intensifies the pressure on the company’s commercial execution to prevent negative operating leverage in 2025 compared to the expected exit rate in the fourth quarter of 2024.

In light of these factors, Deutsche Bank has revised downward its 2025 Revenue and EPS estimates by 8% and 14%, respectively. The new price target is based on a multiple of 14.5 times the estimated 2025 earnings per share, which represents a 15% discount to the median of Fortrea’s CRO peers.

In other recent news, Fortrea has faced adjustments in its financial outlook following its 2024 second-quarter results. TD Cowen, Mizuho, and Citi have all revised their price targets for the company, reflecting a cautious stance due to Fortrea’s challenging outlook and slower-than-expected bookings.

TD Cowen reduced its price target for Fortrea to $23 from $27, citing the company’s ambitious 2025 guidance which anticipates adjusted EBITDA margins of 11-12% and a growth of 30-40%.

Similarly, Mizuho lowered its price target for Fortrea from $27 to $22, influenced by slower bookings and a less favorable business mix.

Citi also reduced its price target for the company from $42 to $30, but maintained a ‘Buy’ rating, expressing optimism about Fortrea’s potential for margin expansion in the longer term.

Fortrea’s Q2 revenue declined by 8.6% year-on-year, with adjusted EBITDA down by 23.2%. In response, the company has revised its full-year 2024 revenue guidance to $2.7 billion to $2.75 billion and adjusted its EBITDA target for 2024 to $220 million to $240 million. These recent developments reflect the current market conditions and their impact on Fortrea’s business trajectory.

InvestingPro Insights

Fortrea (NASDAQ:FTRE) has been navigating a challenging environment, as reflected in the recent adjustments by Deutsche Bank. To provide a deeper understanding of the company’s financial health and market position, let’s consider some key metrics from InvestingPro. With a market capitalization of $2 billion, Fortrea is a significant player in its sector. Despite the challenges, the company has shown a modest revenue growth of 2.43% in the last twelve months as of Q2 2024. However, investors should note the quarterly revenue decline of -8.65% in Q2 2024, which aligns with Deutsche Bank’s concerns about the company’s revenue outlook.

InvestingPro Tips suggest that analysts are expecting Fortrea’s net income to grow this year, indicating potential upside. Additionally, the significant return over the last week of 11.18% may catch the interest of momentum investors. On the flip side, four analysts have revised their earnings downwards for the upcoming period, signaling caution. For those considering adding Fortrea to their portfolio, it’s worth noting that the company is trading at a high EBITDA valuation multiple and is not currently paying a dividend to shareholders. For a more comprehensive analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/FTRE which could provide further insights into Fortrea’s investment potential.

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