Tuesday, Loop Capital initiated coverage on BrightView Holdings (NYSE:BV) stock with a Buy rating, setting a price target of $18.00. The firm's analysis suggests confidence in the company's potential for long-term margin growth and a successful turnaround strategy.
BrightView, known for landscape services, has been working on a strategic transformation since its 2018 initial public offering, which had been marred by margin dilution due to a decentralized structure and an aggressive growth strategy.
The company's President and CEO, Dale Asplund, has implemented the "One BrightView" strategy, aimed at unifying the business model to drive profitable growth. This strategy includes streamlining the organizational structure, implementing pricing protections, and divesting non-core businesses. These changes are expected to contribute to a 110 basis point increase in adjusted EBITDA margin, according to the midpoint of the company's fiscal year 2024 guidance.
BrightView's strategic shift is also expected to result in future margin expansion through organic growth, driven by enhanced cross-selling between its maintenance and development segments and improved customer retention rates. These rates had dropped by five percent since the company's IPO.
The firm anticipates that BrightView's underlying demand in both maintenance and development sectors will remain robust, and expects the company to resume mergers and acquisitions in fiscal year 2025 after strengthening its balance sheet and investing in its core operations.
Despite past performance issues, Loop Capital views the previous management's missteps as correctable and believes there is ample opportunity for BrightView to exceed industry growth rates. The $18 price target is based on a 10 times multiple of the firm's projected fiscal year 2025 EBITDA. Loop Capital's outlook suggests that BrightView's stock could reach the upper end of its five-year valuation range.
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