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On Monday, Citi analysts revised their outlook on Fortrea (NASDAQ:FTRE), reducing the price target from $23.00 to $12.00 but maintaining a Neutral rating on the stock. The stock, currently trading at $10.38, has declined 26% year-to-date and 63% over the past year, according to InvestingPro data. The adjustment followed Fortrea’s recent earnings call, where management cited poor economics on pre-spin bookings as the primary cause for its shortfall in 2025 guidance.
The company’s management highlighted several challenges they anticipate will impact the financial performance in the coming year. These include headwinds from both the pre-spin bookings and a product mix leaning towards oncology, which is expected to contribute to an approximately 8% burn rate for the year 2025. Despite these challenges, InvestingPro analysis shows the company maintains a "GOOD" financial health score of 2.6, with particularly strong relative value metrics. Additionally, Fortrea’s profit margins are expected to be affected due to the lower profitability of pre-spin bookings.
Despite these challenges, Fortrea is actively implementing cost-saving measures, especially in its Selling, General, and Administrative (SG&A) expenses. The company predicts yearly net savings of $40-50 million, equating to a year-over-year decline of about 80 basis points in SG&A expenses. Looking further ahead, by fiscal year 2026, Fortrea’s management anticipates mid-single-digit growth, a B2B ratio of approximately 1.15x, and an additional decline of roughly 100 basis points in SG&A, as cost reduction efforts persist.
The newly provided guidance for 2025 fell significantly short of investor expectations, particularly regarding EBITDA. Furthermore, analysts expressed concerns that the initial framework for 2026 may be met with skepticism due to the company’s recent performance. In response to these updates, Citi analysts have revised their model for the quarter, leading to the lowered price target for Fortrea stock.
In other recent news, Fortrea has reported disappointing fourth-quarter earnings and revenue, missing analyst expectations significantly. The company announced an earnings per share of $0.18, falling short of the $0.42 forecasted by analysts, while revenue reached $697 million, below the expected $813 million. This represents a decline from the previous year’s same quarter revenue of $709.7 million. Fortrea’s full-year 2025 guidance also suggests a challenging period ahead, with anticipated revenues of $2.45-2.55 billion, below the consensus estimate of $2.74 billion. The company’s adjusted EBITDA for the quarter was $56 million, a slight decrease from $58.9 million in the prior year’s quarter. Citi analyst Patrick Donnelly reiterated a Neutral rating and a $23.00 price target on Fortrea, noting the challenging clinical CRO backdrop. Despite these setbacks, Fortrea’s backlog increased to $7.7 billion, indicating potential future growth. The company is also undertaking cost-cutting measures, including a workforce reduction, to address financial challenges.
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