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Investing.com - Commercial Metals Company (NYSE:CMC) stock rose Monday after UBS raised its price target on the steel manufacturer to $62.00 from $56.00 while maintaining a Neutral rating. Currently trading at $58.34 with a market capitalization of $6.53 billion, InvestingPro data indicates the stock is slightly overvalued based on its proprietary Fair Value model.
The price target increase follows Commercial Metals’ agreement to acquire CP&P, a precast concrete manufacturer, for $675 million, representing a 9.5x EV/EBITDA multiple based on 2025 estimates.
UBS noted the acquisition price implies CP&P generates approximately $71 million in EBITDA, with the multiple dropping to 8.5x after accounting for tax adjustments.
Commercial Metals expects to achieve synergies of $5-10 million by the third year following the acquisition, which combined with market growth should bring the multiple closer to CMC’s current 6.5x multiple.
UBS considers the valuation fair, highlighting that while CP&P trades at a premium to CMC, it operates a capital-light business with superior cash flow conversion of over 70% compared to CMC’s 50-60%, and industry peers trade at multiples closer to 10x.
In other recent news, Commercial Metals Company has announced a definitive agreement to acquire Concrete Pipe & Precast, LLC for $675 million in cash, with customary adjustments. This acquisition, involving a leading supplier of precast concrete solutions, is expected to enhance Commercial Metals’ presence in the U.S. Mid-Atlantic and South Atlantic regions. Analysts have responded positively to this development, with Jefferies raising its price target for Commercial Metals to $70, maintaining a Buy rating. Similarly, Wells Fargo increased its price target to $64, keeping an Overweight rating on the stock.
Wells Fargo noted that the acquisition is a "compelling, easily digestible" move for the company. Additionally, Wells Fargo initiated coverage on Commercial Metals with an Overweight rating and a $61 price target, citing expectations for improving EBITDA due to recent rebar price hikes. These price increases are supported by factors such as reduced imports, steady demand, and limited new mill supply. The acquisition of Concrete Pipe & Precast is anticipated to represent a multiple of 9.5 times CP&P’s forecasted 2025 EBITDA, with effective multiples dropping to approximately 8.5 times when cash tax benefits are considered.
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