On Friday, BofA Securities updated its outlook on Knife River Corp. (NYSE: KNF) stock, increasing the price target to $99 from the previous $87 while keeping a Buy rating.
The upgrade reflects Knife River's continued strong performance, with adjusted EBITDA and EPS surpassing consensus estimates. Despite revenues aligning closely with projections, the company's earnings per share of $1.37 outperformed the consensus of $1.24.
The company's backlog stands robust at $989 million, a slight increase from the previous quarter, although it reflects a 5% decrease year-over-year. This backlog is predominantly supported by public funding, accounting for 87% of the total.
Knife River's contracting services are underpinned by a favorable funding environment, with a significant portion of the Infrastructure Investment and Jobs Act (IIJA) funding still pending allocation in the regions where the company operates.
Additionally, 14 states have proposed new legislation to finance further projects, reinforcing the demand for the company's services and materials.
However, BofA Securities anticipates a potential deceleration in gross margin growth for Knife River's Contracting Services division. This is due to the division cycling through a period of substantial improvements.
Despite this, the firm notes Knife River's impressive ability to deliver solid results in a quarter that has seen its larger peers in the aggregates sector struggle with weather-related challenges.
The analyst's commentary highlights Knife River's significant market visibility and the supportive funding landscape as key drivers of the company's business.
The strong backlog, bolstered by public funding, positions Knife River favorably in its market segment. The analyst's outlook remains positive, even as the company navigates through expected margin pressures in the near term.
"In other recent news, Knife River Corporation announced the appointment of Patricia Chiodo to its board of directors. Chiodo, a seasoned financial expert, will serve on the company's Audit and Compensation committees.
With a professional background that includes roles as the CFO of Verra Mobility (NASDAQ:VRRM) Corporation and RSC Holdings, Chiodo is expected to bring valuable expertise to Knife River.
Moreover, DA Davidson recently maintained its Buy rating on Knife River, raising the price target to $90.00 from $84.00. The firm's revised target reflects a strong first-quarter backlog, award activity, and an effective capital deployment strategy.
DA Davidson's analysis also highlighted the company's focus on price realizations across its product lines and margin progression in its Aggregates and Contracting Services divisions as key factors to watch.
These recent developments underscore the company's potential for growth and profitability. DA Davidson's maintained Buy rating indicates a positive outlook for Knife River's future performance.
However, Knife River acknowledges that these forward-looking statements carry risks and uncertainties, and actual results may differ from those projected."
InvestingPro Insights
Knife River Corp. (NYSE: KNF) has been highlighted by BofA Securities for its robust performance, and InvestingPro data reinforces this perspective. The company's market capitalization stands at a solid $4.11 billion, with a P/E ratio that indicates potential value at 20.16, which is even more attractive considering the adjusted P/E ratio for the last twelve months as of Q2 2024 is 19.73. This is complemented by a PEG ratio of 0.42 for the same period, suggesting that Knife River's earnings growth is not yet fully reflected in its stock price.
InvestingPro Tips further enrich the narrative, noting that Knife River is trading at a low P/E ratio relative to near-term earnings growth, which aligns with the company's recent outperformance in earnings per share. Additionally, it's worth noting that the company's liquid assets exceed short-term obligations, providing financial stability and flexibility. With analysts predicting profitability for the current year and a track record of profitability over the last twelve months, Knife River appears to be on solid ground. However, it's important for potential investors to consider that the company does not pay a dividend, which could influence investment decisions depending on individual strategies.
For those seeking more comprehensive analysis, InvestingPro offers additional tips on Knife River Corp, providing deeper insights into the company's financial health and market potential. Visit https://www.investing.com/pro/KNF for a total of 5 InvestingPro Tips that could guide investment decisions regarding Knife River Corp.
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