On Tuesday, BofA Securities adjusted its outlook on Fortrea (NASDAQ:FTRE), reducing the price target from $33.00 to $27.00 while maintaining an Underperform rating on the company's stock. The revision follows Fortrea's recent update on its financial guidance for fiscal year 2024.
According to the firm, the reduction in both sales and adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) projections was more significant than what was previously anticipated from the divestiture of Endpoint Clinical and Fortrea Patient Access businesses.
Fortrea's management acknowledged that the divestiture would impact sales by approximately $250 million and adjusted EBITDA by about $30 million. However, the additional decrease of roughly $100 million in sales and $20 million in adjusted EBITDA was attributed to ongoing operational challenges within the company.
Despite a robust biotech funding environment in the first quarter, which benefits about half of Fortrea's clientele, the company experienced setbacks including a project taken in-house by a client, a rescheduled large contract, a drop in change orders, and fewer passthroughs than anticipated.
These factors contributed to a lower than expected quarterly book-to-bill ratio of 1.11 times. While Fortrea's management is aiming for a book-to-bill ratio of 1.20 times for the remainder of the fiscal year, the securities firm expressed concerns that some of the issues leading to the current shortfall may continue to affect the company's performance going forward.
InvestingPro Insights
As investors digest the recent adjustments to Fortrea's financial outlook, real-time data and insights from InvestingPro offer a more granular perspective on the company's performance and valuation. Fortrea's market capitalization stands at $2.51 billion, reflecting the market's current assessment of the company's value. Despite facing operational challenges, Fortrea is expected to see net income growth this year, hinting at potential for recovery. However, the stock has seen a significant decline over the past week, with a price total return of -22.92%, and over the past month, with a return of -28.02%, indicating recent market reactions to the company's performance and outlook.
InvestingPro Tips suggest that Fortrea's stock is currently in oversold territory according to the Relative Strength Index (RSI), which may interest contrarian investors or those looking for a potential rebound. Moreover, analysts predict the company will become profitable this year, offering a glimmer of hope amidst the operational setbacks. It's important to note that Fortrea does not pay a dividend, which could influence the investment strategy of income-focused shareholders.
For those seeking a deeper dive into Fortrea's financial metrics and additional insights, there are 6 more InvestingPro Tips available, which can be accessed by using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. This comprehensive analysis could provide investors with a more informed basis for their investment decisions in the context of Fortrea's current market dynamics.
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