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On Tuesday, FLSmidth & Co A/S (FLS:DC) (OTC:FLIDF) received an upgraded stock rating from Goldman Sachs, moving from Neutral to Buy. Accompanying this upgrade, the investment firm also increased its price target from DKK340.00 to DKK430.00. The positive shift in rating and target price reflects Goldman Sachs’ revised margin expectations for the Danish engineering company.
Goldman Sachs analysts pointed to anticipated savings in selling, general, and administrative expenses (SG&A) and a favorable shift in the company’s service and product mix, which they believe will bolster FLSmidth’s profitability. The firm predicts a significant margin improvement for FLSmidth, with an increase of 320 basis points to 14.2% by the year 2027. This adjustment has led to a forecast of adjusted EBITA that is approximately 2% higher than the Visible Alpha Consensus for the upcoming year.
The analysts at Goldman Sachs suggest that FLSmidth’s stock deserves a re-rating. They note that the company’s current 12-month forward EV/EBIT multiple of 9.9x is below its 10-year median of 11.5x. The analysts argue that the gap should narrow as FLSmidth’s margin and return on invested capital (ROIC) approach those of its mining equipment peers, which have an average trading multiple of 14.35x.
Adding to the company’s potential for a re-rating is the announcement that FLSmidth is in exclusive talks to sell its Cement business. This divestiture could transform FLSmidth into a pure-play mining company, which, according to Goldman Sachs, could lead to a higher valuation due to its strong focus on copper and gold, as well as an improving returns profile.
Looking to the future, FLSmidth has indicated that it is engaged in discussions with Engineering, Procurement, and Construction Management (EPCM) partners, which are currently busy with study work. Historically, such study work has been an early indicator of a rise in orders over the subsequent 12 to 18 months. Despite some caution due to tariff uncertainties and their impact on near-term demand, Goldman Sachs expects these studies to materialize into orders starting from the fiscal year 2026. Consequently, the firm forecasts that FLSmidth’s group orders will exceed consensus estimates by 0.3%, 0.7%, and 1.8% for fiscal years 2025, 2026, and 2027, respectively.
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