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On Thursday, Goldman Sachs resumed coverage of Downer EDI Ltd (DOW:AU) (OTC: DNERF), issuing a Neutral rating and setting a price target of AUD5.70. The firm’s analysis indicates that the company’s focus on contracting discipline and achieving cost reductions is a sound strategy for improving business performance. This approach has already shown positive results, with Downer EDI’s first half of 2025 EBITA margins growing by 110 basis points compared to the prior corresponding period, reaching 3.7%.
The company’s progress aligns with its long-term incentive (LTI) goals, which aim for an EBITA margin of at least 4.2% in the fiscal year 2025 and an average margin of over 4.5% for fiscal years 2025 and 2026. These targets appear to be within reach based on the current trajectory.
Despite these advancements, Goldman Sachs notes that the recent significant revisions in earnings forecasts and the subsequent rise in Downer EDI’s stock price have largely accounted for the anticipated margin improvements. The firm’s 12-month price target of AUD5.70 is based on a balanced application of a discounted cash flow (DCF) analysis and a next twelve months (NTM) enterprise value to EBIT (EV/EBIT) valuation method.
The financial institution’s stance reflects a cautious optimism about Downer EDI’s ongoing restructuring and efficiency measures. While acknowledging the company’s solid performance in the first half of 2025 and its potential to meet future profitability targets, Goldman Sachs suggests that the current stock valuation already captures much of this positive outlook.
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