On Tuesday, Jefferies maintained a Buy rating on UL Solutions Inc (NYSE: ULS), increasing the price target to $62.00 from $55.00. The firm's analyst cited the company's potential for future mergers and acquisitions (M&A) and confidence in UL's margin expansion execution as the reasons for the adjustment. UL Solutions has a history of active acquisition strategy, having completed over 50 acquisitions in the past decade.
The analyst's revised estimates now include the impact of potential M&A activities that management might undertake in 2025. The focus is expected to be on the Industrial and Software and Advisory segments, which align with UL's strategic direction towards electrification, the Internet of Things, and sustainability. These segments are viewed as appropriate for the company to execute acquisitions that could bring in new customers, capabilities, and intellectual property.
No changes were made to the company's organic growth expectations for 2025, but revenue estimates were increased to account for M&A contributions, anticipated to be around 1% in the fiscal year 2025. The revenue forecast for FY25 is set at $2.99 billion. The analyst has also raised the EBITDA estimate for FY25 to $710 million, up from the previous $702 million, suggesting a margin of 23.7%.
The new price target of $62 reflects an 18x EV/EBITDA multiple, which is higher than the current multiple of approximately 16x. This valuation also represents a slight premium compared to the Diversified Services peer group average, yet remains below that of the best-in-class players in the industry. The increase in the price target indicates a potential upside of 16% from the previous target.
In other recent news, UL Solutions has been the center of several key developments. Citi recommenced coverage on UL Solutions, issuing a Buy rating and setting a target price of $60.00 for the company's shares. Stifel has revised its price target for UL Solutions to $55, maintaining a Buy rating due to strong quarterly results and the potential to exceed 2024 guidance. However, Baird downgraded UL Solutions from Outperform to Neutral, raising its price target to $46.
UL Solutions has also announced the resignation of Jacqueline K. McLaughlin, the Executive Vice President and Chief Legal Officer, effective September 3, 2024. The company continues to expand its operations with strategic acquisitions of German firms TesTneT Engineering GmbH and BatterieIngenieure GmbH, enhancing its influence in the global decarbonization movement and electric vehicle market.
Further, UL Solutions established a new generator safety lab in Toronto to test portable generators for carbon monoxide emissions and shutoff mechanisms, aiming to enhance consumer safety. Finally, the company has formed a partnership with Efectis Era Avrasya to enhance fire door testing capabilities in Southeast Europe and the Middle East. These are the recent developments surrounding UL Solutions.
InvestingPro Insights
UL Solutions Inc's recent performance and financial metrics align well with Jefferies' bullish outlook. According to InvestingPro data, the company's market capitalization stands at $10.6 billion, with a P/E ratio of 38.65, reflecting investor confidence in its growth potential. The company's revenue for the last twelve months as of Q2 2024 was $2.76 billion, showing a 7.39% growth, which supports the analyst's positive view on the company's expansion trajectory.
InvestingPro Tips highlight UL Solutions' impressive gross profit margins, which is evident in the 48.33% gross profit margin for the last twelve months. This strong profitability metric underscores the company's operational efficiency and potential for margin expansion, as noted by the Jefferies analyst.
The company's robust financial health is further emphasized by another InvestingPro Tip indicating that UL Solutions operates with a moderate level of debt. This financial stability positions the company well for future M&A activities, aligning with the analyst's expectations for acquisitions in the Industrial and Software and Advisory segments.
It's worth noting that InvestingPro offers 12 additional tips for UL Solutions, providing investors with a comprehensive analysis of the company's financial health and market position. These insights can be valuable for those looking to make informed investment decisions based on a broader range of metrics and expert observations.
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