On Tuesday, UBS upgraded SFS Group AG (SFSN:SW) (OTC: SFSLF) stock from Neutral to Buy, significantly increasing the price target to CHF140.00 from the previous CHF98.00.
The upgrade comes with a positive outlook on the company's future performance, as UBS expects SFS Group to experience organic sales growth and an improvement in EBIT margin in the year 2024.
The firm attributes the anticipated growth to self-help actions, including new contracts and cost savings, which are projected to contribute approximately 10% to EBIT, enhancing the margin by around 100 basis points over the next 12 to 36 months.
Additionally, stabilizing end markets, particularly in the automotive and construction sectors, are expected to bolster prospects for the company in the year 2025.
UBS forecasts that the industrial production growth in the European Union, which is significant for the company's Distribution & Logistics (D&L) segment, will accelerate to 1.7% year-on-year in 2025, following a slight decline of 0.2% in 2024. This economic backdrop supports the firm's projection of a 3% earnings per share (EPS) growth for SFS Group in 2024 and a 7% increase in 2025.
The analyst sees potential upside risks to the company's EBIT margin target of 11.7% for 2024, suggesting a possible 3-5% risk to the consensus EBIT. The stock's current valuation, trading at 16 times its projected 2024 earnings per share, is noted to be on the lower end compared to other Swiss small and medium-sized enterprises.
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