On Thursday, B.Riley raised the price target for Donnelley Financial Solutions (NYSE:DFIN) to $72 from $66, while keeping a Buy rating on the stock. The adjustment comes ahead of the company's first-quarter earnings report, scheduled for release on May 1, before the market opens.
The firm anticipates that the results will align with market projections for both revenue and adjusted EBITDA, which are expected to be $214.1 million and $50.1 million, respectively. These figures are close to the consensus estimates of $213.1 million in revenue and $50.8 million in adjusted EBITDA.
The analyst's outlook for Donnelley Financial Solutions is influenced by the company's compliance-related business, especially the software component which has seen significant growth and is projected to double by fiscal year 2026. This segment has already seen a doubling in revenue over the past approximately four years. The company's transaction-related business, however, experienced a roughly 40% year-over-year decline at the end of fiscal year 2022, mirroring the overall downturn in deal-related markets.
For fiscal year 2024, expectations are set for a 5% year-over-year growth in transaction volumes and a 6% increase in compliance business. The first quarter is likely to show a slight sequential decline in transactions, but a recovery is expected throughout the rest of the fiscal year.
Additionally, ongoing momentum from ArcSuite and Active Disclosure products is anticipated to drive continued revenue growth in the software for compliance-related business. However, investments in tailored shareholder reports may have slightly impacted EBITDA growth.
Donnelley Financial Solutions' first-quarter performance is expected to meet or exceed the previously issued guidance of revenues between $210 million and $220 million, with an adjusted EBITDA margin in the mid-20s, which would imply an adjusted EBITDA of approximately $53 million. The company's strong software segment, characterized by high margins, is likely to continue bolstering overall growth and profitability, even with a modest improvement in deal flow expected.
Despite the sluggishness in capital markets deal flow, the analyst believes that Donnelley Financial Solutions has positioned itself well by reducing debt, minimizing print operations, enhancing margins, and highlighting software as its standout business unit. With the stock trading at approximately 9 times fiscal year 2025 estimated EV/EBITDA, there is potential for multiple expansion. This is attributed to the company's dominant position in software products with high market share and margins, and the prospect of a rebound in deal flow.
InvestingPro Insights
In light of B.Riley's recent price target update for Donnelley Financial Solutions (NYSE:DFIN), it's important to consider the company's current financial standing and market performance. With a market cap of $1.92 billion and a Price/Earnings (P/E) ratio of 23.34, DFIN is trading at a high Price/Book multiple of 4.76. This indicates that the stock is being valued at a premium compared to its book value, potentially reflecting investor confidence or a market premium for its growth prospects.
From a performance perspective, DFIN has experienced a significant price uptick over the last six months, with a total return of 26.95%, and is trading near its 52-week high at 98.26% of the peak price. This momentum aligns with the InvestingPro Tip that analysts predict the company will be profitable this year, as evidenced by a positive basic EPS (Continuing Operations) of $2.81 for the last twelve months as of Q4 2023.
Investors looking for additional insights can find more InvestingPro Tips on DFIN's performance, including the fact that the company has been profitable over the last twelve months and has demonstrated a strong return over the last five years. For those interested, there are 7 additional InvestingPro Tips available, which can be accessed with a subscription. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, providing a comprehensive analysis to inform investment decisions.
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