Goldman Sachs (NYSE:GS) has adjusted its outlook on Monadelphous (MND: AU) (OTC: MDPHF), a leading engineering group, increasing the price target to AUD12.95 from the previous AUD12.30. Despite the price target hike, the firm maintained a Sell rating on the stock.
The revision reflects a marginal improvement in the company's earnings profile, according to the investment bank. The forecast for Monadelphous's financial performance, particularly its EBITDA, has been raised by 1% for the fiscal year 2025, 1% for 2026, and 2% for 2027, due to slightly better margins than previously estimated.
The decision to adjust the price target also factors in a valuation roll forward to the fiscal year 2025 from 2024, along with an increase in the applied multiple to match the 10-year average. The combined effect of these changes and the use of a 50/50 blend of discounted cash flow (DCF) and enterprise value to EBIT (EV/EBIT) valuation methods resulted in the new 12-month price target of AUD12.95.
Despite the price target increase, Goldman Sachs has expressed caution, stating that with approximately 2% downside, Monadelphous's stock remains in the lowest quintile of the firm's mining services coverage.
The investment bank cited potential risks including the possibility of labor shortages easing more quickly than expected, labor productivity improvements, and pipeline pressure that could lead to higher margins.
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