On Tuesday, UBS initiated coverage on Veralto Corp. (NYSE:VLTO) stock with a Neutral rating and set a price target of $118.
The firm views the company as a consistent performer with the potential for steady growth, citing its compound annual growth rate (CAGR) for organic sales and a strong mix of consumable products in its revenue.
Veralto Corp.'s financials show a robust profile, with approximately 60% of sales coming from consumables, and impressive margins, including 57% gross and 24% EBITDA margins. The company's free cash flow to net income ratio is also highlighted as being over 100%, indicating efficient capital management and profitability.
The analysis by UBS suggests that Veralto's operational model is among the best in its class, continuing to benefit from the implementation of the DHR Business System playbook. The company is expected to experience a compound annual growth rate of around 4% through 2026.
This growth is anticipated to be supported by long-term trends such as increased awareness of water quality and stricter regulations, as well as a growing focus among manufacturers on supply chain transparency and productivity.
Despite these positive attributes, UBS has decided to remain on the sidelines, attributing their cautious stance to the stock's current valuation. The firm believes that the market has already factored in Veralto's favorable characteristics.
Additionally, the company's lower exposure to water infrastructure and limited margin expansion opportunities when compared to certain peers contribute to the Neutral rating.
InvestingPro Insights
UBS's neutral stance on Veralto Corp. (NYSE:VLTO) is complemented by real-time data from InvestingPro, which reveals a nuanced financial landscape for the company. Veralto's market capitalization stands at a solid $26.31 billion, reflecting its substantial presence in the market. Its price-to-earnings (P/E) ratio, as of the last twelve months leading up to Q2 2024, is 32.55, which suggests that the company is trading at a high earnings multiple as noted by one of the InvestingPro Tips. This aligns with UBS's valuation concerns, indicating that the market may have already priced in Veralto's growth prospects.
The company's impressive gross profit margins, which UBS also highlighted, are quantified by InvestingPro data showing a gross profit margin of 58.89% over the same period. This robust margin underpins the company's financial strength and aligns with the InvestingPro Tip highlighting Veralto's impressive gross profit margins. Moreover, Veralto is trading near its 52-week high, with the price at 98.73% of this peak, suggesting investor confidence in the company's performance and potential.
For investors seeking a deeper dive into Veralto's financials, InvestingPro offers additional insights. There are 12 more InvestingPro Tips available that provide a comprehensive analysis of Veralto's financial health and future prospects. These tips, available at https://www.investing.com/pro/VLTO, can guide investors in making informed decisions about their investments in Veralto Corp.
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