On Wednesday, UBS began coverage on ACS Actividades de Construccion y Servicios SA (ACS:SM) (OTC: ACSAY) stock, issuing a Buy rating and setting a price target of €49.00.
The UBS analyst highlighted the company's potential for significant earnings growth and robust cash generation, projecting a 13% earnings per share compound annual growth rate (CAGR) from 2024 to 2028 and net operating cash flow of €3.4 billion between 2024 and 2026.
The analysis by UBS delved into the individual operating segments of ACS, comparing their performance and valuation to that of listed peers. According to the analyst's report, the majority of ACS's valuation is derived from two key subsidiaries:
Turner, which represents 44% of the sum-of-the-parts (SOP) valuation, and CIMIC, accounting for 22% of the SOP. Turner is recognized as a high-quality U.S. construction business with potential for attractive earnings growth, while CIMIC is seen as well positioned to capitalize on strong infrastructure opportunities in Australasia.
Additionally, UBS pointed out that investors currently do not ascribe any value to Abertis, wherein ACS holds a stake. The firm estimates this stake to be worth €1.2 billion, or 10% of the SOP valuation, suggesting that it presents additional option value.
The UBS analyst emphasized that the key to unlocking value for ACS shareholders will be the effective execution of the company's strategy. If ACS can successfully implement its plans, UBS anticipates that this could lead to a re-rating of the company's stock over time. The firm's analysis indicates a strong investment case for ACS, with the potential pivot in strategy offering a pathway to multi-year growth.
InvestingPro Insights
Adding to UBS's bullish outlook on ACS Actividades de Construccion y Servicios SA, recent data from InvestingPro provides further context to the company's financial position and market performance. As of the last twelve months ending Q2 2024, ACS reported a revenue of $40.12 billion, with a notable revenue growth of 6.31%. This growth aligns with UBS's projection of significant earnings expansion in the coming years.
InvestingPro Tips highlight that ACS is a prominent player in the Construction & Engineering industry, which supports UBS's analysis of the company's strong positioning in key markets. The stock is currently trading near its 52-week high, with a one-year price total return of 41.31% as of the latest data, indicating strong market confidence in line with UBS's positive outlook.
Moreover, ACS has maintained dividend payments for 35 consecutive years, demonstrating a commitment to shareholder returns that complements the projected cash generation mentioned in the UBS report. The company's P/E ratio of 14.18 suggests a relatively attractive valuation, especially considering the growth prospects outlined by UBS.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips that could provide deeper insights into ACS's investment potential.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.