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On Friday, Scotiabank updated its outlook on FirstService Corp (NASDAQ:FSV) shares, raising the price target to $175 from $170 while maintaining a Sector Perform rating. The adjustment reflects expectations for the company's return to robust earnings growth in the upcoming quarters.
FirstService's stock has exhibited an approximate 8% increase since the beginning of June, although it has seen a slight year-to-date decline of around 1.4%, underperforming the S&P/TSX Composite's approximate 8% rise. Scotiabank's analysis suggests that FirstService is poised to rebound, forecasting a return to superior earnings growth starting from the third quarter of 2024.
Despite anticipating a 13% year-over-year decline in earnings per share (EPS) for the second quarter of 2024, the firm projects an average 17% year-over-year earnings growth from the third quarter of 2024 until the fourth quarter of 2025, marking six consecutive quarters of double-digit growth.
The anticipated growth is attributed to favorable comparisons and diminishing impacts from interest expenses. Additionally, the potential for increased revenues from hurricane-related restoration activities, which are not currently factored into the model, presents an upside risk to estimates. This is especially relevant given the recent landfall of Hurricane Beryl and predictions of an active storm season in the Atlantic.
In terms of valuation, FirstService is currently trading at 17.2 times its enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) ratio, which is below its average of 18.5 times.
Its price-to-earnings (P/E) ratio stands at 31.5, compared to the average of 32.1. The new price target of $175 is based on a 17.5 times EV/EBITDA multiple, representing a slight increase of $5 from the previous target.
In other recent news, FirstService Corp has been making significant strides in its business operations. BMO Capital Markets recently increased its price target for the company to $196 from $193, maintaining an Outperform rating, following the company's expansion into the commercial roofing sector.
This expansion was achieved through the acquisitions of RCA, Crowther Roofing, and Hamilton Roofing, which collectively contribute over $150 million in annual revenues and establish FirstService's substantial new presence in Florida, a key roofing market in North America.
In addition to its roofing expansion, FirstService reported a 14% revenue increase, reaching $1.16 billion, primarily due to strategic acquisitions. Adjusted EBITDA also saw a 2% rise to $83.4 million.
Despite a decline in some sectors such as restoration due to mild weather, the company remains optimistic about growth prospects, including residential services and the recent acquisition of Rizzetta & Company.
FirstService residential revenues grew by 11% through organic growth and new contracts, while the acquisition of Roofing Corp of America contributed to a 16% revenue increase in First Service brands. However, organic revenues for First Service brands were down by 6%.
The company completed the acquisition of All Restoration Solutions to bolster the Georgia market, and Century Fire Protection reported strong low-double-digit organic growth. These are among the recent developments that indicate the company's strategic direction and potential for growth.
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