On Friday, Citi updated its assessment of Trelleborg AB (TRELB:SS) (OTC: TBABF) shares, a global engineering company, by raising its price target to SEK425 from SEK405, while maintaining a Neutral rating on the stock.
The adjustment comes as the firm anticipates the company's earnings before interest, taxes, and amortization (EBITA) margin to remain stable at 18.1%, aligning with general market expectations.
The analysis by Citi suggests that Trelleborg's Marine Systems (TMS) division may face continued margin pressure due to ongoing inventory reductions. However, the Industrial Solutions (TIS) and Sealing Solutions (TSS) segments are expected to perform in line with market predictions.
Notably, the TSS segment is projected to experience a quarter-over-quarter improvement in margin due to a reduction in under-absorption, which refers to a reversal of negative impacts from fewer working days.
Investors have raised concerns about the potential impact of June being a shorter month this year, which could affect organic growth estimates. Citi's assessment indicates a likely positive working day impact of 1.2-1.3%, suggesting that while there may not be a complete reversal of the 2% decline observed in the first quarter, the difference should not be significant.
The firm also relayed investor feedback regarding Trelleborg's valuation, noting it appears full when considering the return on capital employed (ROCE) and growth potential.
According to Citi, for Trelleborg's stock to maintain its current rating and avoid a devaluation, it is crucial for the company to demonstrate continued progress in margin improvement.
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