On Wednesday, RBC Capital adjusted its outlook on Westport Innovations (NASDAQ:WPRT), a manufacturer of alternative fuel systems, by reducing its price target from $10.00 to $9.00. The firm maintained its Sector Perform rating on the stock. The adjustment follows the company's fourth-quarter results, which did not meet expectations, particularly due to weaker performance in the Original Equipment Manufacturer (OEM) segment.
The company's Independent Aftermarket (IAM) segment, on the other hand, surpassed expectations, benefitting from stronger margins despite a year-over-year decrease in revenues. RBC Capital highlighted the company's cash burn as a significant concern. However, it noted that initiatives are in progress that could potentially gain momentum following the anticipated completion of Westport's joint venture with Volvo (OTC:VLVLY) in the second quarter of 2024.
In response to the recent financial outcomes and future projections, RBC Capital has revised its estimates for Westport Innovations for the years 2024 and 2025. The analyst from the firm provided insight into the decision, stating, "4Q23 results missed expectations on underperformance in the OEM segment while IAM exceeded expectations on stronger margins despite lower revenues y/y. Cash burn remains the focal point. Initiatives are underway, and we believe could accelerate with the close of the Volvo JV expected in 2Q24. We are lowering our PT to $9 on estimate revisions for 2024/25."
Westport Innovations has been focusing on the development of technologies that allow vehicles to operate on clean-burning fuels such as natural gas, thereby contributing to the reduction of greenhouse gas emissions. The pending joint venture with Volvo is seen as a strategic move to strengthen its position in the alternative fuel systems market.
InvestingPro Insights
InvestingPro data provides a real-time snapshot of Westport Innovations' financial health and market performance. With a market capitalization of $117.12 million and a negative price-to-earnings (P/E) ratio of -2.61 as of the last twelve months ending Q4 2023, the company's financial position reflects challenges in achieving profitability. Despite an 8.54% revenue growth during the same period, the company's operating income margin remains negative at -11.26%, underscoring the concerns highlighted by RBC Capital regarding Westport's cash burn. The gross profit margin stands at 14.75%, which, when coupled with the recent 12.36% positive return over the past week, suggests some market optimism.
InvestingPro Tips indicate that analysts have recently revised their earnings expectations downwards for Westport, signaling caution for the upcoming period. Additionally, while the company has experienced significant stock price volatility, it's worth noting that the firm's liquid assets exceed its short-term obligations, providing some financial stability. For investors seeking a more comprehensive analysis, there are 11 additional InvestingPro Tips available for Westport Innovations, which can be accessed on InvestingPro. To delve deeper into these insights, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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