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On Thursday, UBS analyst Rory McKenzie updated the financial outlook for SGS SA (SIX:SGSN:SW) (OTC: SGSOY), increasing the price target from CHF85.00 to CHF95.00, while the stock rating was kept at Neutral. The revision follows SGS’s strong performance during the initial stage of its reacceleration program, with the stock showing an impressive 11.6% return over the past week and trading near its 52-week high of $11.54.
McKenzie noted that, given the company’s robust execution in the first year of the program, investors might consider the margin targets conservative. Despite the positive industry growth outlook, the analyst expressed caution. The report suggests that increased investment by the company could potentially balance out the benefits of the savings program. InvestingPro data shows the company maintains healthy financials with a 43.5% gross profit margin and has consistently paid dividends for 25 consecutive years.
The analyst’s evaluation indicates that earnings could potentially accelerate beyond the set targets. However, this acceleration is anticipated to be outside the current plan horizon. UBS estimates a 16.4% margin by the fiscal year 2027, which is slightly lower than the consensus of approximately 16.8%.
The new price target of CHF95 reflects the analyst’s expectations for the company’s earnings potential. Nonetheless, the decision to maintain a Neutral rating is based on the current valuation, which is over 17 times EV/EBITA, implying that the earnings prospects are already factored into the price.
In other recent news, Citi has reinstated coverage on SGS SA with a Buy rating and a price target of CHF105.00. Citi analyst Arthur Truslove emphasized the company’s potential for margin improvement, citing cost savings and operational leverage as key drivers. SGS SA is expected to benefit from approximately CHF150 million in cost savings, which are projected to increase the company’s adjusted EBIT margin from the 2023 base of 14.7% to a predicted 16.8% by 2026.
Truslove’s analysis also extends to SGS’s adjusted Profit Before Tax for 2026, which is projected to reach CHF1,231 million, approximately 6% above consensus estimates. Meanwhile, Barclays (LON:BARC) has maintained its Underweight rating on SGS SA with a price target of CHF78.00, noting the end of merger discussions with Bureau Veritas SA.
These are recent developments in the company’s journey. While Barclays remains cautious due to the halted merger talks and potential execution risks, Citi’s optimism lies in SGS’s cost savings and operational efficiency, which could potentially drive stock performance growth in the coming years.
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