On Wednesday, Jefferies reinstated coverage on Ferrovial SA (FER:SM) (OTC: FRRVF), a leading company in the European infrastructure sector, with a Buy rating and a price target of €45.00. The firm highlighted the company's strong position in the industry, noting that Ferrovial offers long-term transport concessions with dynamic pricing, which could lead to a 6-7% annual increase in equity valuation.
The coverage comes as the market anticipates the company's second-quarter earnings report. Jefferies pointed out that the roll forward effect of Ferrovial's portfolio is expected to contribute to the upside in the company's equity valuation. Additionally, projections for the year 2026 include €1.2 billion in free cash flow, which is anticipated to support returns of approximately €700 million to shareholders. This translates to a yield of 2-3% at current market levels.
Jefferies also underscored several upcoming events that could serve as catalysts for the company's stock performance. These include the potential sale of Heathrow Airport Holdings, the possible sale of AGS Airports, a decision on the SR400 project, and anticipated price increases for the 407 ETR toll road. These factors are expected to provide a 17% increase from the stock's current levels.
The €45.00 price target set by Jefferies for Ferrovial aligns with a 3.8% yield for the year 2025, which is consistent with the company's long-term average. This assessment reflects the firm's positive outlook on Ferrovial's financial prospects and its strategic position within the European infrastructure market.
InvestingPro Insights
As Ferrovial SA (FER:SM) (OTC: FRRVF) garners attention with its strong industry stance, real-time metrics from InvestingPro highlight several financial aspects that investors may find compelling. The company boasts an impressive gross profit margin of 86.74% for the last twelve months as of Q4 2023, emphasizing its efficiency in managing costs relative to revenue.
With a market capitalization of 30.48 billion USD, Ferrovial trades at a P/E ratio of 60.91, which is considered high. However, this is somewhat mitigated by the company's low PEG ratio of 0.41 over the same period, suggesting that its earnings growth rate may justify the higher P/E ratio to some extent. This aligns with Jefferies' view of the company's potential for an annual increase in equity valuation.
Investors also take comfort in the company's consistent dividend payments over the last 20 years, with a current dividend yield of 1.57%, and the next dividend ex-date scheduled for May 20, 2024. This reliability in returning value to shareholders complements Jefferies' projection of robust free cash flow and anticipated shareholder returns by 2026.
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