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On Thursday, BNP Paribas (OTC:BNPQY) Exane analyst Bruno Gjani downgraded WEIR Group Plc. (WEIR:LN) (OTC: WEGRY (OTC:WEGRY)) stock rating from Outperform to Neutral, setting a price target of GBP22.70. The company, currently trading near its 52-week high with a P/E ratio of 27.4, has maintained a solid financial health score according to InvestingPro analysis. The downgrade comes amid concerns over the company’s revenue performance and the anticipated shortfall in the second half of 2024.
WEIR Group’s revenue has seen a decline of approximately 3% year-over-year during the first three quarters, with InvestingPro data showing a 4.97% revenue decline in the last twelve months. Analysts had expected a significant recovery in the fourth quarter, with estimates of around 17% year-over-year and 20% quarter-over-quarter growth. The company maintains strong fundamentals with a healthy current ratio of 2.07 and gross profit margin of 38.59%. However, Gjani points out that the current consensus does not sufficiently cover revenue forecasts for the latter half of 2024.
According to Gjani’s order conversion model, there is a considerable downside risk to the revenue expectations. He suggests that WEIR Group might report a double-digit percentage revenue miss for the fourth quarter. Gjani’s model predicts a less pronounced increase in revenue, aligning more closely with historical trends.
Despite the potential for margin surprises on the upside, the analyst believes that this will not be enough to offset profit concerns. Gjani forecasts that WEIR Group may fall short of adjusted operating forecasts by nearly 5% in the second half of 2024. The company is expected to release its financial report on February 28, 2025. InvestingPro subscribers have access to 6 additional key insights about WEIR Group’s financial outlook and performance metrics.
In other recent news, Morgan Stanley (NYSE:MS) has upgraded WEIR Group’s stock, citing potential for margin growth and strong aftermarket prospects. The firm’s analysts anticipate WEIR Group to achieve a 20% operating margin by 2026, backed by expected cost reductions and growth initiatives. They also noted the company’s GBP25 million savings realized by the third quarter of 2024, adding confidence in achieving the GBP60 million cumulative savings goal by 2026.
The analysts have also highlighted the current state of commodity markets, with high copper and gold prices creating a favorable environment for WEIR’s aftermarket revenues in 2025. The company’s significant exposure to aftermarket revenues distinguishes it within the European mining equipment sector.
Additionally, the disposal of the Oil & Gas business in 2020 has improved WEIR Group’s free cash flow generation. The company aims for an operating free cash flow conversion rate of 90-100%. This financial flexibility could lead to potential inorganic growth opportunities or share buybacks, further supporting the analysts’ positive view on the stock’s future performance. These are among the recent developments for WEIR Group.
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