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On Wednesday, Citi initiated coverage on Cooper-Standard Holdings Inc. (NYSE:CPS) with a Neutral rating and a price target set at $12.00. Currently trading at $13.22, InvestingPro analysis suggests the stock is slightly undervalued based on its Fair Value model. The firm highlighted that Cooper-Standard, a company that has been undergoing restructuring for the past decade, is poised for improvement as industry conditions stabilize.
Citi analysts pointed out that Cooper-Standard has faced repeated setbacks due to external events, but with the easing of tariff discussions, the company is expected to benefit from an uptick in industry volumes. The analysts expect the company to see positive outcomes from cost-saving measures implemented in 2024, which should enhance performance in the first half of 2025. According to InvestingPro data, the company’s revenue stands at $2.73B, though it faces challenges with weak gross profit margins of 11.09%.
The firm also noted the potential for higher margins from new business and increased penetration in China, alongside commercial agreements established in 2023 that could mitigate material pricing risks. Cooper-Standard, which achieved double-digit EBITDA margins before the pandemic, is on the cusp of returning to those levels, with margins reaching 9.4% in the fourth quarter of 2024. Current EBITDA stands at $189.09M, though InvestingPro indicates the company is not yet profitable over the last twelve months.
Citi emphasized the importance of debt reduction for Cooper-Standard, stating that approximately 80% of the company’s current enterprise value is represented by debt. InvestingPro data shows total debt of $1.19B against a market cap of $237.25M. Through more disciplined capital spending and improved earnings, Cooper-Standard is expected to reduce its debt by 20% in 2025-26, which should transfer value to equity. The anticipated annualized savings of $40-50 million from workforce reductions completed in 2024 are seen as a key driver for the company’s financial improvement in the first half of 2025.
In other recent news, Cooper Standard reported disappointing fourth-quarter 2024 financial results, missing both earnings and revenue forecasts. The company posted an EPS of -$0.16, falling short of the $0.02 forecast, and revenue came in at $660.8 million compared to the projected $692.2 million. Despite these challenges, Cooper Standard achieved a 96.8% increase in adjusted EBITDA for the quarter, reflecting efforts to enhance operational efficiency. For the full year 2024, sales declined by 3% to $2.7 billion, but adjusted EBITDA rose to $180.7 million from $167.1 million in 2023. Looking ahead, Cooper Standard anticipates positive free cash flow in 2025 and aims to achieve double-digit EBITDA margins by the end of the year. The company also projects a 50% growth in its fluids business over the next five years, with capital expenditure expected to remain between 2-3% of sales. CEO Jeff Edwards emphasized the company’s focus on innovation and efficiency, stating that increased operating efficiency and the ramp-up of higher-margin business will enable them to achieve their strategic targets.
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