On Thursday, RBC Capital maintained an Outperform rating on shares of Gates Industrial Corp. (NYSE: NYSE:GTES), while raising the price target to $26.00 from the previous $22.00. The adjustment follows investor meetings held on December 10-11 in Dallas and Houston with the company's CFO. The discussions reaffirmed the third-quarter earnings call's points, with a focus on the anticipated margin expansion and cost-saving initiatives.
During the meetings, the company's financial officer highlighted the expectation of a +400 basis points margin improvement driven by the 80/20 principle, material cost savings, and increased productivity through footprint optimization. The CFO also expressed optimism about a potential uptick in the core industrial belts and hoses segment in the coming year.
Gates Industrial's management team conveyed their enthusiasm about the recent clearing of the sponsor overhang, which has been a point of interest for investors. The company is now looking forward to capitalizing on the growth opportunities that lie ahead, particularly in its fundamental product lines.
Insights were shared regarding the ongoing industry shift from chain to belt systems, the implications of an aging vehicle population, and the burgeoning opportunities in the datacenter liquid cooling market. Gates Industrial's positioning as a "chicken cyclical" was emphasized, with a notable 65% of its business stemming from the more stable aftermarket sector.
The raised price target reflects confidence in Gates Industrial's strategic initiatives and its potential for growth, particularly in light of the company's efforts to return to positive volume in its essential industrial businesses.
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