On Thursday, Veralto Corp. (NYSE: VLTO) shares, currently trading at $105.35 with a market capitalization of $26.4 billion, received a positive outlook from Jefferies, as the firm initiated coverage on the company's stock, assigning a Buy rating and setting a price target of $125.
According to InvestingPro data, the stock has demonstrated strong momentum with a 28.42% gain year-to-date. The industrial holding company, known for its operations in water and product quality, was recognized for its robust financial metrics, including an approximate 30% return on invested capital (ROIC) and about 60% gross margin - which InvestingPro confirms with its latest reported gross margin of 59.38%. The platform's analysis indicates a GOOD overall financial health score, suggesting strong operational efficiency.
Jefferies highlighted Veralto's sustainable business model, underpinned by its focus on mission-critical applications, consistent pricing power, and a strong direct-to-customer distribution channel.
The company's defensible moat is expected to maintain its premium operating metrics, though InvestingPro notes the stock trades at relatively high multiples with a P/E ratio of 31.78x. Subscribers can access 8 additional ProTips and comprehensive valuation metrics in the Pro Research Report.
The analyst noted that Veralto's demand should remain stable due to its significant reliance on recurring revenues, which make up around 60% of sales. An acceleration in growth is anticipated into 2025, driven by a recovery in consumer packaged goods (CPG) and industrial markets.
Jefferies anticipates that Veralto's combination of mid-single-digit (MSD) organic growth and potential for strategic capital deployment positions the company to compound its earnings at a double-digit rate.
The firm's pro forma 2027 earnings estimate for Veralto stands at over $5 per share, which is 10% higher than the base case forecast. This projection underscores the analyst's confidence in the company's future performance and ability to deliver strong shareholder value.
In other recent news, Veralto Corporation has reported notable developments in its financial performance and strategic partnerships. Veralto's Q3 performance demonstrated a solid 4.6% increase in core sales and a 19% rise in adjusted earnings per share (EPS) to $0.89. The corporation also successfully acquired TraceGains, augmenting its capabilities in the food and beverage compliance sector.
In addition to these financial highlights, Veralto has invested $15 million in Axine Water Technologies, a company specializing in electrochemical oxidation technology for industrial wastewater treatment. This strategic partnership is anticipated to enhance Veralto's water treatment portfolio and expand Axine's customer base in North America.
Sales in Veralto's Water Quality segment increased by 3.6% to $801 million, while the PQI segment saw a 6.3% rise to $513 million. The company's free cash flow was reported at $215 million, and its balance sheet showed $1.27 billion in cash with a leverage ratio of 1.1x.
Looking ahead, Veralto expects low to mid-single-digit core sales growth in Q4, with Q4 adjusted operating profit margins projected around 24%. The anticipated adjusted EPS for Q4 is between $0.86 and $0.90. The full-year adjusted EPS guidance has been increased to $3.44 to $3.48, indicating an optimistic view of Veralto's operational performance and strategic initiatives.
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