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On Wednesday, Canaccord Genuity maintained a Hold rating on shares of Worthington Industries (NYSE:WOR), with a steady price target of $46.00. The firm addressed the recent executive change at Worthington, noting the unexpected nature of the transition. Despite the surprise, analysts expect a smooth changeover due to the new leader's extensive experience within the company.
The commentary followed a period of significant structural changes at Worthington, including the separation of its Enterprises division from the Steel segment nearly a year ago. The company's financial performance in the first quarter of fiscal year 2025 did not meet expectations, marking the third quarter of reporting since the steel business division was spun off and the sustainable energy solutions segment entered a joint venture.
Canaccord Genuity had previously stated that Worthington might benefit from a potential rate-cutting cycle and that the company could be past its lowest point. However, they also expressed skepticism about Worthington's ambitious long-term sales goals, which they view as overly dependent on mergers and acquisitions.
Worthington has set targets for annual revenue growth between 6% and 8%, an adjusted EBITDA margin around 24%, and free cash flow (FCF) conversion rates of 85% to 90%. Analysts believe the company anticipates organic growth of 3% to 4% annually, with new products contributing an additional 1% to 2% on top of a baseline growth model pegged to GDP increases of 1% to 3%.
The leadership change is seen as an opportunity for the new executives to potentially set more achievable goals, especially considering the company's share price struggles since March, following an initially strong performance after the structural separation.
In other recent news, Worthington Enterprises reported a decline in its Q1 fiscal 2025 performance, with consolidated net sales falling by 17.5% to $257 million, and adjusted EBITDA and earnings per share dropping to $48 million and $0.50, respectively.
Despite these results, the company initiated a modernization project in Chilton, Wisconsin, and declared a dividend of $0.17 per share.
InvestingPro Insights
Recent InvestingPro data and tips offer additional context to Worthington Industries' current situation. Despite the company's ambitious growth targets mentioned in the article, InvestingPro data shows that Worthington's revenue growth (quarterly) for Q1 2025 was -17.51%, indicating some challenges in meeting its goals. This aligns with Canaccord Genuity's skepticism about the company's long-term sales objectives.
An InvestingPro Tip highlights that Worthington "has maintained dividend payments for 52 consecutive years," which could be seen as a positive sign of financial stability amidst the recent structural changes and leadership transition. However, another tip notes that "3 analysts have revised their earnings downwards for the upcoming period," suggesting some caution in near-term expectations.
The company's P/E ratio stands at 73.19, which the InvestingPro Tip describes as "trading at a high earnings multiple." This high valuation might explain why Canaccord Genuity maintains a Hold rating, as the current share price may already reflect optimistic growth expectations.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Worthington Industries, providing a deeper understanding of the company's financial health and market position.
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