On Monday, Jefferies initiated coverage on Loar Holdings Inc (NYSE: LOAR) with a Buy rating and set a price target of $65.00. The firm highlighted several factors contributing to the positive outlook, including the robust performance of the Commercial.
Aftermarket segment, which made up 37% of the company's sales in 2023 and is expected to grow at an 11% organic compound annual growth rate (CAGR) through to 2026. This growth is anticipated to lead to a 24% increase in earnings per share (EPS) by 2025 due to the aging fleet.
The report also forecasts an expansion in EBITDA margin, projecting an increase to 39% in 2026 from 35.5%, attributed to net price and operational leverage. The long-term target for EBITDA margin is set at 42%. Additionally, the firm anticipates that Loar Holdings could generate approximately $200 million in free cash flow (FCF) in 2025 and 2026, which could be used to acquire $20 million of EBITDA at an average multiple of 10X.
This acquisition strategy could potentially add $10 per share in value.
Jefferies' price target of $65 for Loar Holdings reflects the company's potential for both organic and inorganic growth. The positive assessment underscores the analyst's confidence in the company's growth trajectory and financial strategy over the next few years.
InvestingPro Insights
As Jefferies sets a confident tone for the future of Loar Holdings Inc (NYSE: LOAR) with a Buy rating and a $65 price target, insights from InvestingPro further enrich the analysis of the company's financial health and market performance. With a current market capitalization of $5.11 billion, Loar Holdings is navigating the market with impressive gross profit margins of 48.54% over the last twelve months as of Q1 2024, highlighting the company's efficiency in managing its cost of goods sold relative to its revenue, which stands at $335.07 million.
The company's stock has experienced a strong return over the last month, with an 18.29% increase, reflecting investor optimism and aligning with Jefferies' positive outlook. Moreover, Loar's liquid assets surpass its short-term obligations, indicating a solid liquidity position that supports its operational and strategic flexibility. This financial stability is particularly noteworthy as the company looks to expand through acquisitions, as mentioned in the Jefferies report.
However, the InvestingPro data also shows that Loar Holdings is trading at a high earnings multiple, with a P/E ratio of 956.93 and an adjusted P/E ratio for the last twelve months as of Q1 2024 at 520.03. This high valuation could suggest that investors are expecting significant future growth. For those considering investing in Loar Holdings, it may be beneficial to explore additional InvestingPro Tips for a deeper analysis, including the company's valuation multiples and profitability forecasts. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription and unlock more than 10 additional tips that could guide your investment decisions.
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