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Investing.com -- JP Morgan initiated coverage of Gates Industrial Corp with an Overweight rating and a $35 price target, saying the maker of power transmission equipment is well placed to turn its industrial base into a stronger, innovation-driven business.
The target implies about 39% upside from current levels.
The brokerage said Gates is in the midst of a transition from a traditional supplier into a “growth compounder,” supported by exposure to long-term trends in data centers and mobility.
The company holds the top global share in power transmission, generates about 70% of sales from the aftermarket, and has delivered gross margins above 40% for five straight quarters.
JP Morgan pointed to emerging growth drivers such as high-performance thermal management systems for data centers, a business that could scale to $100 million by 2026, and lightweight battery drives for personal mobility and powersports, which it expects to triple from $100 million today to over $300 million by 2028.
By then, data centers and mobility could contribute more than 10% of total revenue, up from 3% in 2024.
The firm said Gates has steadily improved its supply chain, pricing, and manufacturing efficiency, helping it absorb tariff impacts while expanding margins.
Free cash flow conversion has exceeded 90%, and net leverage is on track to fall below 1.5 times by 2026.
JP Morgan applied a 12 times EV/EBITDA multiple to its 2026 estimates, a 20% premium to Gates’ three-year average, arguing the company deserves a re-rating as margins and balance sheet strength improve.
With Blackstone’s 2024 exit removing an overhang, the firm said the stock trades at a discount to peers and has room to re-rate higher.