Barclays sees five catalysts lifting Bodycote, upgrades to overweight

Investing.com -- Barclays upgraded Bodycote (LON:BOY) to "overweight" from "equal weight," citing five catalysts it said could lift the heat-treatment specialist’s shares and drive earnings growth. 

The brokerage raised its price target to 765p from 635p, implying about 21% upside from the Dec. 2 closing price of 635p.

Barclays said demand tied to data-center power represents an underrecognized growth driver.

Barclays estimated that about 4% of Bodycote’s core revenue comes from industrial gas turbines, largely through Siemens Energy and GE Vernova, with Bodycote providing hot isostatic pressing and thermal processes for turbine components. 

It forecast Siemens Energy turbine shipment growth to post a 29% compound annual rate in fiscal years 2025 through 2028, driven by power needs associated with data-center and AI expansion. 

Barclays said this contribution could allow industrial gas turbines to account for about 8% of group revenue by fiscal 2028.

Momentum from aerospace engines and defense markets was also highlighted. Civil engine original equipment and aftermarket work makes up about 17% of revenue, and defense about 6%. 

Barclays said LEAP engine-related production accelerated between July and October 2025 and projected that trend to continue through fiscal 2028. It also pointed to increasing Trent-family program volume and forecast NATO equipment spending outside the U.S. to grow at a 10% rate annually from fiscal 2024 to 2030.

Barclays said internal restructuring and efficiency plans are supporting margin expansion. Management’s target for an EBITA margin above 20% by fiscal 2028 is supported by the firm’s “Optimise/Perform” initiatives, which it expects to contribute about 200 basis points, with additional gains from improved mix and volume leverage. Barclays forecast EBITA margin rising to 18.6% in fiscal 2027, up 260 basis points compared with fiscal 2025.

The brokerage identified fiscal 2025 as the trough year for performance, projecting a return to organic growth in fiscal 2026 and a 130-basis-point increase in EBITA margin year over year to 17.3%. 

It said growth momentum is expected from aerospace and industrial gas turbines as well as delivery of delayed oil and gas orders, while further cost benefits of £3 million to £4 million are anticipated from the optimization program.

Valuation was the fifth catalyst cited. Barclays said Bodycote trades on 12.9x fiscal 2026 price-to-earnings, placing the company among the cheapest stocks in its UK and European capital-goods coverage universe, with a 32% discount on EV/EBITA and 35% discount on PE relative to peers. 

It noted the company is completing a £30 million share buyback by January 2026 and said leverage below 1x could create scope for an additional £30 million repurchase if no acquisitions intervene.

Barclays said it expects Bodycote to return to earnings-per-share growth at an 11% compound rate between fiscal 2026 and 2027. The brokerage said the stock has lagged the sector year to date, trading flat compared with an 8% gain for peers.