On Tuesday, BMO Capital adjusted its stance on GFL Environmental (NYSE:GFL) stock, moving the rating from Outperform to Market Perform and slightly decreasing the price target to $42 from the previous $43. The downgrade comes after a notable increase in the company's stock value, with approximately a 25% rise since early June.
The firm's analysts noted that the current stock price likely reflects the market's high expectations for the potential sale of GFL Environmental's Environmental Services division. They expressed concern that if the anticipated transaction does not occur, there could be a retreat in the stock's recent advancements.
BMO Capital's revised rating to Market Perform indicates a neutral outlook, suggesting that the stock may now align more closely with market performance expectations.
The analysts at BMO Capital have stated they might revisit a more optimistic rating if GFL Environmental's valuation were to pull back or if there were significant improvements in narrowing the EBITDA margin gap with its industry peers, assuming other conditions remain constant.
The Environmental Services company has seen its shares surge in the past month, with investors potentially banking on the divestiture of one of its divisions to unlock value. The analyst's commentary highlights the risk of a potential decline in share price if the transaction does not proceed as the market anticipates.
GFL Environmental's stock adjustment by BMO Capital reflects a cautious approach to the company's near-term prospects, taking into consideration the recent share price performance and the speculation surrounding its Environmental Services division.
In other recent news, GFL Environmental has been making significant strides in its operations. The company reported a strong first quarter in 2024, exceeding expectations with a 7.7% increase in pricing and a robust acquisition strategy.
It completed six acquisitions in the solid waste sector, anticipating substantial organic growth from these strategic moves. Despite a 3% decline in volume growth, GFL Environmental remains on track to meet or surpass its full-year volume projections.
The firm ADW Capital Management, a major shareholder in GFL Environmental, has publicly urged the company to consider selling its Environmental Solutions division or potentially the entire business.
Analysts from Truist Securities and TD Cowen maintain a Buy rating on GFL Environmental, suggesting that divesting the Environmental Services business could significantly decrease GFL's leverage, a key concern for investors.
In addition to these developments, GFL Environmental has attracted interest from private equity sponsors for a potential partial or full acquisition of the company's operations. These are recent developments that have been shaping GFL Environmental's strategic direction.
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