On Wednesday, Jefferies revised its stance on Fortrea (NASDAQ:FTRE), downgrading the stock from Buy to Hold and adjusting its price target to $21 from the previous $25. The firm indicated that Fortrea's revenue growth is essential for the company to meet its margin objectives.
According to Jefferies, half of the expected margin improvement for 2025 is projected to come from better utilization of billable staff, particularly in the Financial Services Outsourcing (FSO) sector, while the other half is anticipated from reductions in selling, general and administrative expenses (SG&A).
Jefferies noted that if the demand remains strong, Fortrea's EBITDA margin goal of 11-12% for the year 2025 could be within reach. However, the firm expressed concern over the current challenging market conditions, anticipating that net bookings may face pressure. This pressure on bookings in the present is likely to impact revenue in the following year.
The report further detailed that for the second half of 2024, Fortrea's bookings are expected to remain around 1.0x. This level of bookings alone could negatively impact the company's 2025 EBITDA by approximately 3%. The analyst predicted that these factors would make it difficult for Fortrea to achieve its targeted margin expansion.
The downgraded rating and reduced price target reflect Jefferies' concerns about Fortrea's ability to grow amidst a deteriorating environment and the subsequent challenges the company may face in expanding its margins as previously hoped.
In other recent news, Fortrea, a NASDAQ-listed company, has seen multiple revisions to its share price targets following its Q2 2024 earnings report. Deutsche Bank, TD Cowen, Mizuho, and Citi have all adjusted their price targets for Fortrea, citing slower-than-expected bookings and a challenging outlook.
Despite a decline in Q2 revenue by 8.6% year-on-year and adjusted EBITDA down by 23.2%, Fortrea has secured strategic partnerships with top pharmaceutical customers and launched two new offerings.
Deutsche Bank revised its price target for Fortrea shares to $23.00, down from the previous target of $28.00, while retaining a Hold rating on the stock. TD Cowen also reduced its price target for Fortrea to $23 from $27, citing the company's ambitious 2025 guidance.
Mizuho lowered its price target for Fortrea from $27 to $22, influenced by slower bookings and a less favorable business mix. Citi reduced its price target for the company from $42 to $30, but maintained a 'Buy' rating, expressing optimism about Fortrea's potential for margin expansion in the longer term.
In light of these developments, Fortrea has revised its full-year 2024 revenue guidance to $2.7 billion to $2.75 billion and adjusted its EBITDA target for 2024 to $220 million to $240 million. These recent developments reflect the current market conditions and their impact on Fortrea's business trajectory.
InvestingPro Insights
As we consider the recent downgrade of Fortrea by Jefferies, it's insightful to look at some key metrics and tips from InvestingPro that could further inform investors' perspectives. According to InvestingPro, Fortrea is trading at a high EBITDA valuation multiple, which suggests that the market has high expectations for the company's earnings before interest, taxes, depreciation, and amortization. This aligns with Jefferies' focus on the importance of EBITDA margins for Fortrea's financial goals.
Moreover, Fortrea's market capitalization stands at $2.02 billion, reflecting the size and scale of the company within its industry. Despite the challenges highlighted by Jefferies, InvestingPro Tips indicate that analysts predict Fortrea will be profitable this year, which could be a sign of potential resilience in the face of market headwinds. Additionally, the company's revenue growth over the last twelve months was 2.43%, a modest increase that may warrant cautious optimism regarding its capacity for growth.
While Fortrea does not pay a dividend, suggesting a reinvestment strategy or a focus on growth, the company's recent price performance shows a one-month total return of 0.82%, which could be a point of interest for investors considering the stock's short-term movements. For those looking for more in-depth analysis, InvestingPro offers a range of additional tips on Fortrea, providing a broader investment perspective.
It's important to note that these insights are part of a larger array of information available on InvestingPro, where investors can find more detailed analysis and tips to guide their investment decisions regarding companies like Fortrea.
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