JFrog stock rises as Cantor Fitzgerald maintains Overweight rating after strong Q2
On Monday, Citi adjusted its outlook on Fortrea (NASDAQ:FTRE), reducing the price target to $30 from the previous $42, while keeping a Buy rating on the stock. The revision follows Fortrea's management discussion regarding their financial projections and operational challenges.
During a recent earnings call, management highlighted that fourth-quarter EBITDA margins are expected to be between 11-12%, with a similar projection for FY25. This forecast suggests a 30-40% increase in EBITDA dollars for FY24. However, second-quarter bookings were affected by longer decision-making processes in the biotech sector, leading to a book-to-bill ratio of approximately 0.96x. Despite this, management expressed optimism about the large pharmaceutical pipeline heading into the second half of the year.
Fortrea's management believes that achieving a book-to-bill ratio of around 1.2x in the second half of 2024 would enable the company to reach the upper end of its 11-12% EBITDA margin target for 2025. They also anticipate that most of the transition service agreements (TSAs) will be concluded by the end of 2024, with only minor carryover into the early part of 2025.
Citi's analyst pointed out that while Fortrea's recent bookings fell short of expectations, the firm remains positive about the company's potential for margin expansion, especially in the longer term. This optimism is contingent upon Fortrea's ability to improve its execution. In light of these factors, Citi has updated its financial model for Fortrea, leading to the revised price target while reaffirming its Buy rating on the stock.
In other recent news, Fortrea, a contract research organization, has reported a decline in Q2 revenue by 8.6% year-on-year, with adjusted EBITDA down 23.2%. Despite these challenges, the company has secured strategic partnerships with top pharmaceutical customers and launched two new offerings. The company's book-to-bill ratio for the quarter was just under one, leading to an adjustment in their guidance and other financial targets. In light of these developments, Fortrea has lowered its full-year 2024 revenue guidance to $2.7 billion to $2.75 billion and revised its adjusted EBITDA target for 2024 to $220 million to $240 million.
InvestingPro Insights
As Fortrea (NASDAQ:FTRE) navigates its operational challenges and financial projections, current data from InvestingPro provides a nuanced perspective on the company's market position. With a market capitalization of $2.25 billion, Fortrea's valuation reflects a complex picture. Notably, the company is trading at a high EBITDA valuation multiple, which aligns with Citi's view of the potential for margin expansion. This is underscored by an adjusted P/E ratio for the last twelve months as of Q1 2024 at -29.99, suggesting investors are anticipating future growth despite recent performance.
InvestingPro Tips reveal that analysts predict Fortrea will be profitable this year, which may validate the optimism expressed by the company's management regarding the EBITDA margin target for 2025. However, it's worth noting that three analysts have revised their earnings downwards for the upcoming period, indicating some caution in the short-term outlook. Moreover, the company does not pay a dividend, which may influence investment considerations for income-focused shareholders.
For investors seeking a more detailed analysis, InvestingPro offers additional tips that delve into Fortrea's financial health and future prospects. These insights can be critical for making informed decisions, especially in a volatile market environment.
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