On Monday, Baird initiated coverage on Centuri Holdings Inc (NYSE:CTRI) stock, assigning an Outperform rating with a price target set at $30.00.
The firm highlighted the company's focus on small projects, with an average contract size of approximately $20,000, and its predictable revenue model, where around 80% of revenue comes from multi-year master service agreements.
Centuri Holdings' significant involvement in U.S. electrification and grid investment, which comprises about 50% of its revenue, was also noted as a positive factor.
The separation from Southwest Gas (NYSE:SWX) is viewed as a strategic step that could unlock growth potential for Centuri Holdings outside the confines of a regulated utility structure. Baird anticipates that this could lead to overhead cost savings and more efficient fleet management, potentially improving the company's profit margins.
Despite acknowledging certain challenges in 2024, such as a decrease in contributions from offshore wind projects, timing of rate cases, and a slower base utility capital expenditure in the first half of the year, Baird remains optimistic.
The firm expects Centuri Holdings to achieve high single-digit or better organic growth, considering the stock to be undervalued compared to its peers.
InvestingPro Insights
As Centuri Holdings Inc (NYSE:CTRI) garners an Outperform rating from Baird, insights from InvestingPro reveal additional layers to the company's financial health and market position. With a market capitalization of $2.25 billion, Centuri's stock is trading near its 52-week high, reflecting investor confidence. The company's revenue growth over the last twelve months as of Q4 2023 stood at 5.03%, indicating a steady increase in earnings.
InvestingPro Tips suggest that while Centuri's stock may be in overbought territory according to RSI indicators, the company has a solid liquidity position, with liquid assets surpassing short-term obligations. However, it's worth noting that Centuri does not pay dividends to shareholders and has been unprofitable over the last twelve months. The gross profit margin is considered weak at 9.43%, which may be a point of concern for potential investors. For those considering taking a position in Centuri, the InvestingPro platform offers further analysis and tips, with a total of 6 additional InvestingPro Tips available for Centuri Holdings. To access these insights and enhance your investment strategy, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
InvestingPro Data also highlights that the company's P/E ratio adjusted for the last twelve months is -75.38, which could suggest that the market expects future earnings growth despite the current lack of profitability. The fair value estimate provided by InvestingPro stands at $35.39, which is significantly higher than the current price, suggesting potential upside for investors.
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