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On Friday, Benchmark analyst Bill Sutherland adjusted the price target for RCM Technologies (NASDAQ:RCMT) to $30 from the previous $37, while still recommending the stock as a Buy. The revision follows RCM Technologies’ fourth-quarter earnings, which did not meet expectations, yet the company maintains a positive outlook. According to InvestingPro data, the stock appears undervalued despite falling over 30% year-to-date. The firm projects low double-digit adjusted EBITDA growth for the year 2025, building on its current EBITDA of $23.54 million.
The lower gross profit in the fourth quarter was primarily due to reduced margins in Engineering Services, attributed to a higher proportion of lower-margin projects and two singular issues. Despite these setbacks, RCM Technologies is seeing growth in new business across all segments, maintaining a healthy gross profit margin of 28.66%. The Specialty Healthcare sector, in particular, is expected to achieve over 15% revenue growth with Education clients in the 2024-25 and 2025-26 school years, driven by school district expansions.
In the Engineering segment, the momentum in Energy Services is robust, and the Aerospace & Defense sector is witnessing a revival in its business pipeline and recruitment activities. The company’s cash position improved in the fourth quarter, benefiting from a decrease in days sales outstanding (DSO). This upward trend in cash flow is anticipated to continue into 2025.
Sutherland’s revised price target of $30 is based on a more conservative model for the year 2025. This target suggests a price-to-earnings (P/E) ratio of 12.8x and an enterprise value to EBITDA (EV/EBITDA) ratio of 10.5x. Current InvestingPro metrics show the stock trading at a P/E of 8.9x and EV/EBITDA of 6.55x, indicating potential value opportunity. These multiples represent a discount compared to the median of RCM Technologies’ peers, which the analyst believes compensates for the company’s relatively lower liquidity. For deeper insights into RCMT’s valuation and eight additional exclusive ProTips, consider accessing the comprehensive Pro Research Report available on InvestingPro.
In other recent news, RCM Technologies reported mixed financial results for Q4 2024. The company fell short of earnings expectations with an earnings per share (EPS) of $0.49, missing the forecasted $0.81 by 39.5%. However, revenue slightly exceeded projections, coming in at $76.91 million compared to the anticipated $76.27 million. Despite the revenue beat, the company’s profitability was impacted by increased SG&A expenses and reduced adjusted EBITDA, which fell from $8.9 million in Q4 2023 to $6.3 million. Analyst reactions were mixed, with some expressing concerns over the significant EPS miss, while others noted the company’s strategic initiatives in AI and energy services as potential growth drivers. The company’s leadership remains optimistic about 2025, targeting low double-digit quarterly adjusted EBITDA growth. These developments reflect ongoing challenges and opportunities for RCM Technologies as it navigates operational hurdles and explores strategic growth areas.
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