On Tuesday, Citi maintained its Buy rating on Loar Holdings Inc (NYSE: LOAR) and increased the stock's price target to $88 from $64. This revision follows Loar Holdings' second-quarter results, which have led Citi to recognize the company's potential for significant earnings growth over the next five years.
Citi attributes the optimistic price target to several factors expected to drive the company's growth. These include an anticipated low-teens percentage increase in organic growth over the next few years, spurred by the expansion of airline traffic and higher build rates from original equipment manufacturers (OEMs). Additionally, the introduction of new products, higher pricing strategies, and market share gains are seen as key contributors to this growth trajectory.
The investment firm also foresees mergers and acquisitions (M&A) as a pivotal element in Loar Holdings' expansion strategy. Given the fragmented nature of the industry, a continuous stream of deal activity is expected to bolster the company's growth. Citi projects that such M&A initiatives will significantly contribute to Loar Holdings' development.
Moreover, Citi anticipates that Loar Holdings will experience consistent margin growth. This forecast is based on expected improvements in productivity, strategic pricing, and an advantageous mix of products and services. These factors are projected to coalesce, resulting in a 30% increase in topline revenue and a 34% rise in EBITDA by the year 2028.
In summary, Citi's revised price target reflects a strong conviction in Loar Holdings' fundamental growth prospects, supported by the company's recent performance and strategic market positioning. The firm maintains its Buy rating, signaling confidence in the stock's potential for future gains.
In other recent news, Loar Holdings Inc. demonstrated robust financial performance in the second quarter, with a 17% increase in organic growth and an adjusted EBITDA of $35 million. Total sales reached $97 million, surpassing expectations. The company's strong performance prompted Jefferies to raise its stock price target to $85 and reiterate a Buy rating. Similarly, RBC Capital increased its price target to $80, maintaining an Outperform rating.
Loar Holdings has also entered into a definitive agreement to acquire Applied Avionics for $385 million. The acquisition is expected to strengthen Loar's aftermarket presence and complement its business model. The transaction will be financed through additional borrowings and cash on hand, with expected tax benefits estimated at $45 million.
Financial firms Jefferies, Citi, Morgan Stanley (NYSE:MS), and RBC Capital have initiated coverage on Loar Holdings. Jefferies and Citi started with a Buy rating, recognizing the company's potential to generate around $200 million in free cash flow in 2025 and 2026. Morgan Stanley initiated coverage with an Equalweight rating, while RBC Capital started with an Outperform rating.
InvestingPro Insights
Following Citi's optimistic assessment, insights from InvestingPro further underscore the potential of Loar Holdings Inc (NYSE: LOAR). The company's impressive gross profit margins, as reflected in the last twelve months as of Q2 2024, stand at 48.55%. This margin strength supports Citi's projection of consistent margin growth and aligns with the company's strategic pricing and product mix.
Moreover, the company's revenue growth is noteworthy, with a 31.12% quarterly increase reported in Q2 2024. This robust growth rate is in harmony with Citi's anticipation of a significant increase in topline revenue over the next few years. InvestingPro Tips also highlight that Loar Holdings has demonstrated a strong return over the last year, with a 52.56% year-to-date price total return, which may interest investors looking for high-performing stocks.
However, investors should be aware of the company's valuation multiples, as Loar Holdings is trading at a high Price / Book multiple of 8.81, suggesting a premium market valuation. This is further reinforced by an adjusted P/E ratio of 387.23, indicating a high earnings multiple that could signal cautious optimism for value-focused investors. For those interested in further insights, there are additional InvestingPro Tips available for Loar Holdings at InvestingPro.
Overall, the data provided by InvestingPro complements Citi's analysis, offering investors a comprehensive view of Loar Holdings' financial health and market performance.
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