Citi has increased its price target for Mayville Engineering Company (NYSE: NYSE:MEC) to $24.00, up from $19.00, while reaffirming a Buy rating on the stock.
The revision follows the company's second-quarter results for 2024, which exceeded both Citi's and Wall Street's expectations.
Mayville Engineering reported robust financial performance in the second quarter of 2024, with free cash flow (FCF) reaching $19.2 million, significantly surpassing the pre-report estimate of $9.5 million.
The strong cash generation has led the company to raise its 2024 FCF outlook from the initial range of $35 million to $45 million to a new forecast of $45 million to $55 million.
Despite potential challenges in the second half of 2024 due to softness in various end-markets such as commercial vehicles, powersports, and agriculture, Citi believes that Mayville Engineering's new project initiatives and the incremental contributions from the recent MSA acquisition, along with enhanced operational performance, are likely to mitigate some of these pressures. This supports the company's ability to meet its reaffirmed 2024 revenue and adjusted EBITDA guidance.
The company has also maintained its organic growth forecast for 2024, aiming for a range of 1.5% to 2.5%. Citi notes that Mayville Engineering's commitment to reducing debt should enable it to reach its year-end leverage target of 1.5x to 2.0x.
Moreover, Mayville Engineering's MBX/self-help initiatives are expected to drive margin expansion, which could, over time, contribute to earnings growth.
Mayville Engineering reported encouraging financial results for the second quarter of 2024. The manufacturing company experienced a 7% organic sales growth year-over-year, largely due to the successful execution of new projects in the commercial vehicle and powersports markets.
In terms of earnings, the Q2 net sales rose by 17.7% to $163.6 million, while the manufacturing margin increased to $22.3 million. The company's adjusted EBITDA also climbed to $19.6 million.
InvestingPro Insights
Following Citi's optimistic stance on Mayville Engineering Company (NYSE:MEC), InvestingPro data and tips further illuminate the financial landscape of the company. With a market capitalization of $378.96 million, Mayville Engineering is trading at a P/E ratio of 34.66, which might seem high, but this is balanced by the company's strong free cash flow yield, as indicated by one of the InvestingPro Tips. This aligns with the substantial free cash flow reported for Q2 2024 and the improved full-year outlook. Additionally, revenue growth has been impressive, with an increase of 15.61% over the last twelve months as of Q2 2024 and a quarterly revenue growth of 17.74% for the same period.
InvestingPro Tips highlight that Mayville Engineering is expected to see net income growth this year and is predicted to be profitable, which is consistent with the positive earnings revision by Citi. Furthermore, the company has demonstrated a strong return over the last three months, with a price total return of 23.4%, and an even more remarkable six-month price total return of 49.76%. These returns are a testament to the company's robust financial performance and the market's favorable reception of its strategic initiatives.
While the company does not pay a dividend, its liquid assets exceed short-term obligations, indicating a healthy liquidity position. For those interested in a deeper dive into Mayville Engineering's financial health, InvestingPro offers additional tips, with a total of 11 tips available to help investors make informed decisions. To explore these further, investors can visit InvestingPro's dedicated page for Mayville Engineering at https://www.investing.com/pro/MEC.
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