On Thursday, BMO Capital downgraded NFI Group Inc. (NFI:CN) stock, a bus and motor coach manufacturer, from Outperform to Market Perform, adjusting the price target to C$19.00 from the previous C$23.00. The decision comes despite the firm's estimates for the company not having materially changed over the past year.
The analyst at BMO Capital justified the downgrade by pointing to the stock's performance, which has seen a significant increase from around C$10 to just over C$16 recently. The new price target represents a change in the target multiple to 8 times from 9 times the firm's projected 2025 EBITDA and 7 times from 8 times the projected 2026 EBITDA.
The downgrade reflects the analyst's view that the current stock price of NFI Group now presents a balanced risk/reward outlook. This assessment is based on the stock's growth over the past year, which has potentially aligned its market value more closely with the company's expected financial performance.
NFI Group's stock movement from approximately C$10 to just over C$16 indicates a substantial rise that the BMO Capital analyst believes now fully incorporates the anticipated future earnings, hence the adjustment to a Market Perform rating. The firm's perspective suggests a neutral stance on the stock's future movement given the recent price appreciation.
The new valuation approach taken by BMO Capital emphasizes a more conservative multiple applied to the company's expected earnings before interest, taxes, depreciation, and amortization (EBITDA) for the years 2025 and 2026. This reevaluation is a direct response to the stock's trajectory over the recent period, aligning expectations with the current market conditions.
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