Margin growth and improved cash flow drive UBS bullish outlook on WSP Global stock By Investing.com

On Tuesday, UBS initiated coverage on WSP Global Inc. (WSP:CN) (OTC: WSPOF) stock with a Buy rating and set a price target of C$262.00. The firm highlighted the company’s potential to benefit from increased global infrastructure and structural investment.

According to UBS, WSP Global’s cash flow, which has been impacted by temporary factors such as ERP system costs and tax headwinds, is expected to normalize within the next one to two years, leading to a higher conversion rate.

The UBS analyst anticipates a significant rise in free cash flow (FCF) for WSP Global by the year 2026, forecasting approximately C$1.5 billion, which represents a 53% conversion to adjusted EBITDA. This expectation surpasses the consensus estimate of C$1.3 billion and a 48% conversion rate.

Additionally, UBS predicts a margin improvement of around 130 basis points between 2024 and 2026, driven by operating leverage and cost optimization strategies. This is notably higher than the consensus estimate of approximately 80 basis points.

UBS’s analysis suggests that WSP Global’s stock is currently trading at a discount when compared to its three-year average EV/EBITDA multiple. The firm expects that as WSP Global continues to deliver on its financials, the valuation gap will close, potentially leading to an approximate 15% upside for the stock.

However, UBS also acknowledges the risks involved, particularly concerning the execution of M&A integration with Power Engineers and the possibility of macroeconomic weakness that could slow down government and private investment.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.