On Monday, RBC Capital initiated coverage on shares of Ricardo PLC (LON:RCDO:LN), a global strategic engineering and environmental consultancy, with an Outperform rating and a price target of GBP6.50. The firm's analysis suggests that Ricardo PLC is poised to benefit from the growing focus on sustainability and energy transition.
RBC Capital's assessment indicates that following Ricardo's recent restructuring and shift in strategic direction, the company is now entering a growth stage with potential for a significant increase in its stock valuation. The analyst believes that Ricardo's stock could experience a re-rating, moving from approximately 8.6 times forward EV/EBIT to a valuation closer to that of its industry peers, which stands around 15 times.
The firm's confidence in Ricardo PLC is further bolstered by the company's strategic plan to derive 75% of its operating profit from its Environment and Energy Transition portfolio (E&ET). RBC Capital's price target of 650 pence is based on a sum-of-the-parts (SOTP) valuation, reinforcing their Outperform rating.
Ricardo PLC's strategic focus on sustainability and energy transition is seen as a key factor in limiting downside risk and enhancing its position in the market. The company's efforts to align with expected sector growth could potentially lead to a more favorable comparison with its peers in terms of stock valuation.
The Outperform rating by RBC Capital reflects an optimistic outlook for Ricardo PLC's stock, as the company navigates through its growth phase and works towards achieving its strategic profit goals within the E&ET portfolio.
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