On Monday, Craig-Hallum maintained a Hold rating on shares of Babcock (LON:BAB) & Wilcox Enterprises (NYSE: BW) but increased the price target to $2.00 from the previous $1.50. The adjustment follows the company's recent announcement of selling its Renewable Parts and Services business in Northern Europe and the UK.
The transaction, valued at $87 million in cash, is part of Babcock & Wilcox's strategy to streamline its operations, sell non-core assets, and strengthen its financial position.
Last week, the company also reaffirmed its EBITDA guidance for 2024, projecting between $105 million and $115 million, which reflects a significant year-over-year growth of 25% to 37%. This guidance effectively raises previous forecasts due to the sale of the renewable business, which contributed approximately $80 million in annual revenue with around a 10% EBITDA margin. The sale is expected to be completed in the second half of 2024.
The firm's optimism is cautiously increasing regarding the direction of Babcock & Wilcox's business, particularly in light of recent activities and cost reduction efforts. The analyst highlighted that the company's guidance revision signals increased confidence in the fourth quarter of 2024.
Despite these positive developments, the firm awaits better operational execution, enhanced cash flow, and clearer visibility from orders and backlog translating into improved results. This includes orders for transitions from coal to gas and biomass.
Further improvements in Babcock & Wilcox's balance sheet and more concrete progress in the commercialization of its ClimateBright technology, which focuses on hydrogen and carbon dioxide capture, are also anticipated by the firm.
In terms of valuation, Babcock & Wilcox is currently trading at 7 times its estimated 2025 earnings, compared to an average of 7.5 times among its power generation industry counterparts. This valuation underpins the firm's decision to reiterate its Hold rating on the company's stock.
In other recent news, Babcock & Wilcox Enterprises has been making notable strides in its financial and environmental efforts. The energy and environmental services provider reported first-quarter results for 2024 that exceeded expectations, with new contracts and awards reaching approximately $500 million.
Still, total revenue decreased to $84.1 million, with adjusted EBITDA dropping to $1.7 million. Notably, B&W's environmental business segment saw a 23% increase in revenue and a 74% rise in adjusted EBITDA.
In terms of business developments, the company finalized the sale of its subsidiary, Babcock & Wilcox Renewable Service A/S, to Swiss firm Hitachi (OTC:HTHIY) Zosen Inova AG for $87 million, as part of a strategy to streamline its business.
B&W also secured contracts totaling over $18 million for its Environmental segment, aimed at designing and supplying upgrades for electrostatic precipitators at utility and industrial plants in the United States and Europe.
In a significant move towards sustainability, B&W announced a partnership with NorthStar Clean Energy to convert a former coal-fired power plant in Filer City, Michigan, into a Bioenergy with Carbon Capture and Storage (BECCS) facility. This project will utilize B&W's proprietary SolveBright technology to capture up to 550,000 tons of CO2 annually.
The company is also shifting its focus towards power generation upgrades, environmental and renewable technologies, as well as hydrogen and syngas projects.
InvestingPro Insights
InvestingPro data reflects a challenging financial landscape for Babcock & Wilcox Enterprises (NYSE: BW), with a market capitalization of $189.03 million and a negative P/E ratio of -0.86, indicating that the firm is not currently profitable. Moreover, the company's revenue growth has seen a dip of nearly 14% in the last quarter, adding to the concerns about its short-term revenue prospects.
Still, in terms of stock performance, Babcock & Wilcox has experienced a significant return over the last week, month, and three months, with respective total price returns of 23.87%, 61.34%, and 74.55%. This suggests a positive investor sentiment in the short term, despite the company's recent price being only 30.97% of its 52-week high.
Two InvestingPro Tips highlight critical aspects for potential investors: Babcock & Wilcox operates with a significant debt burden and may have trouble making interest payments on its debt, which could be a concern for long-term financial stability. On the brighter side, the company's net income is expected to grow this year, offering a glimpse of optimism for future profitability.
For those interested in a deeper analysis, there are additional InvestingPro Tips available, which can be accessed with a subscription. Readers can use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, unlocking further insights into Babcock & Wilcox's financial health and stock performance.
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