On Monday (NASDAQ:MNDY), Benchmark upgraded its price target on RCM Technologies (NASDAQ:RCMT) shares from $33.00 to $37.00, while maintaining a Buy rating on the stock. The firm's decision followed RCMT's solid third-quarter results and a positive forecast for its business segments, which are expected to support low double-digit Adjusted EBITDA growth through the remainder of 2024 and into 2025.
RCM Technologies reported third-quarter revenue and Adjusted EBITDA that were in line with expectations, growing by 4% and 10% respectively. The company's new business pipelines are expanding, particularly in the Specialty Healthcare segment, which is anticipated to see a 20% revenue increase during the 2024-25 school year due to expansions in school districts.
The Engineering segment is experiencing strong momentum in Energy Services, and the Aerospace & Defense segment is witnessing a recovery in its pipeline and hiring. While Accounts Receivable (AR) has increased this quarter due to timing issues, management expects it to return to normal levels by the end of the year.
Benchmark's analyst highlighted RCMT's impressive Return on Invested Capital (ROIC), which has averaged 26% over the past five years. The analyst believes that the company is positioned to continue its upward re-rating, especially given its outlook for EBITDA growth. The new price target of $37 reflects a 14x P/E based on projected 2025 earnings, which is a four-turn discount to the median valuation of its peer group.
In other recent news, RCM Technologies reported a strong third-quarter performance, with significant contributions from the Healthcare and Engineering sectors. The company's consolidated gross profit increased by 3.2% year-over-year to $17.8 million, and adjusted EBITDA grew by 9.5% to $5.6 million.
The Healthcare sector is forecasted to achieve a 20% revenue growth in school services for the 2024-2025 school year, and the Engineering sector, especially in Energy Services, is expected to exceed its 2024 revenue and EBITDA projections.
Despite a 13.1% gross profit decline in the Life Sciences, Data & Solutions division, RCM Technologies has been making strategic investments in technology and sales to bolster capabilities. The company anticipates continued growth in the Healthcare and Engineering sectors, backed by a robust pipeline of projects and clients leading into 2025.
RCM Technologies also secured over 20 new school district contracts, each potentially contributing an average of $500,000. Non-school revenue is predicted to rise significantly in Q4 2024, despite a major client's service wind down.
Executives anticipate low double-digit EBITDA growth in the long term and are optimistic about the impact of recent political developments on infrastructure spending. These are just a few of the recent developments at RCM Technologies.
InvestingPro Insights
Recent data from InvestingPro adds depth to Benchmark's optimistic outlook on RCM Technologies (NASDAQ:RCMT). The company's market cap stands at $182.4 million, with a P/E ratio of 12.29, suggesting a potentially attractive valuation relative to its earnings. This is particularly noteworthy given the company's strong financial performance, with revenue reaching $272.5 million in the last twelve months as of Q3 2024, representing a 3.84% growth.
InvestingPro Tips highlight RCMT's financial strength and market performance. The company's liquid assets exceed short-term obligations, indicating a solid financial position. Moreover, RCMT has shown impressive returns, with a 30.99% price total return over the past three months and a 14.94% return in the last month. These figures align with Benchmark's positive outlook and support the potential for continued growth.
It's worth noting that InvestingPro offers 13 additional tips for RCMT, providing investors with a more comprehensive analysis of the company's prospects. These insights can be particularly valuable for those looking to make informed decisions based on a broader range of financial metrics and market indicators.
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