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BofA positive on Construction Partners acquiring Lone Star, raises stock PT

Published 06/11/2024, 13:28
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On Wednesday, BofA Securities increased the price target for Construction Partners Inc (NASDAQ: NASDAQ:ROAD) to $90 from the previous $68, while maintaining a Buy rating on the stock. The adjustment follows the announcement on Monday (NASDAQ:MNDY) that Construction Partners completed its acquisition of Lone Star Paving, an asphalt manufacturing and paving company based in Central Texas.

The acquisition, which was previously announced, has led Construction Partners to revise its fiscal 2025 guidance upwards. BofA Securities views the acquisition positively, citing the attractive transaction multiple, strategic fit, and potential for leveraging growth over multiple years.

Construction Partners' acquisition of Lone Star represents a significant move in expanding its operational footprint in Central Texas, a region with considerable growth prospects. The integration of Lone Star's manufacturing and paving capabilities is expected to bolster Construction Partners' market position and operational efficiencies.

The raised guidance for fiscal 2025 suggests that Construction Partners is confident about the financial impact of the acquisition. The company's updated outlook appears to be a reflection of the anticipated synergies and growth opportunities that the deal with Lone Star Paving is expected to generate.

The new price target of $90 by BofA Securities indicates a strong conviction in the future performance of Construction Partners' stock. The firm's continued Buy rating suggests that the acquisition is seen as a catalyst for further value creation for shareholders.

In other recent news, Construction Partners Inc. has been in the spotlight with its largest acquisition to date, purchasing Lone Star Paving for $654 million. This strategic move is expected to contribute an estimated $530 million in annual revenue and $120 million in Adjusted EBITDA.

The acquisition has prompted Baird to raise its price target on Construction Partners' stock to $92.00 from $68.00, while DA Davidson increased its target to $75 from $55, both maintaining a Neutral rating.

The acquisition of Lone Star Paving, a significant player in Texas, not only expands Construction Partners' existing platform but also positions the company for potential further growth. Analysts from Baird and DA Davidson highlighted the potential for margin improvement and expansion opportunities in the Texas market as factors that could sustain the company's valuation.

Moreover, Construction Partners has reported robust fiscal 2024 results, projecting revenues between $1.821 billion and $1.825 billion, and net income between $68 million and $70 million. The company's strong performance and strategic acquisition have led to an upward revision of estimates for fiscal year 2025 and initial forecasts for fiscal year 2026.

These recent developments reflect a positive outlook for Construction Partners' financial performance, despite potential increased leverage which may limit deal activity in the short term.

InvestingPro Insights

The recent acquisition of Lone Star Paving and BofA Securities' bullish outlook on Construction Partners Inc (NASDAQ: ROAD) are further supported by real-time data from InvestingPro. The company's market cap stands at $4.27 billion, reflecting its significant presence in the construction sector. ROAD has demonstrated impressive growth, with revenue increasing by 18.84% over the last twelve months to $1.76 billion.

InvestingPro Tips highlight ROAD's strong financial performance, noting that the company has been profitable over the last twelve months and analysts predict continued profitability this year. This aligns with the positive sentiment expressed in BofA Securities' raised price target. Additionally, ROAD has shown a remarkable price return of 103.7% over the past year, indicating strong investor confidence in the company's growth strategy, including acquisitions like Lone Star Paving.

It's worth noting that ROAD is trading at a high P/E ratio of 59.58, which could suggest that investors are pricing in significant future growth expectations, possibly influenced by strategic moves such as the recent acquisition. For investors seeking more comprehensive analysis, InvestingPro offers 17 additional tips for ROAD, providing a deeper understanding of the company's financial health and market position.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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