On Thursday, DA Davidson adjusted its financial outlook for Southland Holdings (NYSE:SLND), reducing the price target on the company's shares from $6.00 to $4.00. Despite the change in price target, the firm maintained a Neutral rating on the stock. The revision follows Southland Holdings' third-quarter adjustments and ongoing work to complete its legacy portfolio.
The analyst from DA Davidson expressed a need for Southland Holdings to demonstrate further progress in its legacy portfolio and to establish a clearer path to consistent and profitable results. The new price target is based on 9 times and 6 times the firm's 2025 and 2026 EBITDA estimates, respectively. The reassessment comes in response to the significant adjustments made in the third quarter and the work expected to continue into the next year, which adds uncertainty to the company's forward model and expectations.
Southland Holdings' tangible book value stood at $3.22 per share at the end of the third quarter, which, despite being a premium over the current trading levels, has decreased from $5.37 per share at the end of 2023. The analyst also noted that future losses are probable according to their current model.
The financial analysis includes anticipated cash balances that are expected to be collected, including through dispute resolutions. However, the analyst highlighted that the collection of these funds is not guaranteed, indicating a level of risk in the company's financial projections.
In other recent news, Southland Holdings Inc. has reported its financial results for the third quarter of 2024, indicating a significant decrease in revenue and a net loss. The company's Q3 revenue stood at $173 million, down from $312 million in the same period the previous year, resulting in a gross loss of $51 million. Despite these losses, Southland Holdings ended the quarter with a robust backlog of $2.74 billion, largely due to new core projects expected to boost profitability in the future.
The company's Civil and Transportation segments reported gross losses of $18 million and $33 million respectively. However, the management remains optimistic about the company's strategic initiatives and anticipates a recovery in profitability by 2025, supported by the strong $2.5 billion core project backlog.
In addition to these developments, Southland Holdings closed a $42.5 million real estate transaction and a $160 million senior secured term loan facility, extending debt maturities to 2028 to enhance liquidity. The company also anticipates cash inflows from ongoing dispute resolutions and expects to substantially complete the legacy backlog by the end of 2025.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Southland Holdings' (NYSE:SLND) financial situation, aligning with DA Davidson's cautious outlook. The company's market capitalization stands at $120.26 million, reflecting the market's current valuation of the firm.
InvestingPro Tips indicate that Southland Holdings is facing significant challenges. The stock has taken a big hit over the last week, with a 1-week price total return of -12.59%. This short-term decline is part of a broader trend, as the stock has fallen significantly over the last year, with a 1-year price total return of -60.63%.
Financial metrics from InvestingPro reveal that Southland Holdings is currently unprofitable, with a negative gross profit margin of -4.82% for the last twelve months as of Q3 2024. This aligns with the InvestingPro Tip that the company suffers from weak gross profit margins.
Despite these challenges, one InvestingPro Tip suggests that Southland Holdings' valuation implies a strong free cash flow yield, which could be of interest to value-oriented investors. Additionally, the company's liquid assets exceed short-term obligations, potentially providing some financial flexibility as it works through its current difficulties.
For readers interested in a more comprehensive analysis, InvestingPro offers 11 additional tips for Southland Holdings, providing a deeper understanding of the company's financial health and market position.
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