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On Thursday, RBC Capital adjusted its outlook on Spirax-Sarco Engineering Plc (SPX:LN) (OTC: SPXSY) stock, reducing the price target to GBP70.00 from the previous GBP80.00, while keeping an Underperform rating on the stock.
The firm's analysis suggests that despite potential positive developments in the future, there remain concerns regarding the company's performance and growth prospects.
The revision follows observations of increased interest in Spirax-Sarco after a weak first half of the year. RBC Capital acknowledges that the discussion regarding the company's outlook has become more complex. In light of this, the firm has revised its earnings per share (EPS) estimates for Spirax-Sarco, projecting a 9% decrease for 2024 and an 11% decrease for 2025.
RBC Capital cites several reasons for maintaining the Underperform rating. The firm points to persistent uncertainties related to the company's Energy Technology Solutions (ETS) performance and the growth in its Steam business. These factors contribute to RBC Capital's cautious stance on the stock.
Furthermore, RBC Capital notes that Spirax-Sarco's price-to-earnings (PE) ratio based on 2025 estimates stands at 23 times, which is significantly higher than the sector average of 16 times. This valuation suggests that the stock is not as attractive compared to its peers, despite the reduced price target suggesting a smaller absolute downside.
An upcoming Capital Markets Day in October is mentioned as a potentially positive event that could influence the company's trajectory. However, the firm concludes that, at present, the questions surrounding Spirax-Sarco's performance warrant the continuation of an Underperform rating with the adjusted price target.
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