D.A. Davidson believes the recent 4 percent pullback in Universal Forest Products, Inc. UFPI offers an attractive entry point. Hence, the brokerage upgraded the stock to Buy from Neutral, and raised the price target by $5 to $110.
Shares of Universal Forest Products fell 4.38 percent on Wednesday to close the day’s trading at $91.75 on a volume of 313,400 shares versus its three-month average of 138,700 shares. Shares are also $19 below its 52-week high of $110.97.
In addition, the brokerage noted that the company’s idX acquisition increases its international exposure, while enhancing efficiencies in product design and development. The company paid $150 million (6X EBITDA) for idX, which is expected to boost EBITDA by 10 percent.
“If acquisitions can be accomplished at a similar multiple to idX, UFPI could conceivably grow EBITDA another $40 million,” analyst Steven Chercover wrote in a note.
Meanwhile, Universal Forest Products reported third quarter EPS of $1.36, which came in a penny above the consensus estimate. But, the number missed D.A. Davidson’s estimate by $0.10 due to a shortfall in gross margin.
As such, the analyst cut his FY 2016 EPS estimate to $4.94 from $5.01, but raised FY 2017 forecast to $5.81 (from $5.32) to reflect the gains from idX deal.
“While eventually the law of large numbers could kick in, we still believe UFPI is uniquely positioned to prosper and add value in a low growth economic environment,” Chercover concluded.
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