On Thursday, Canaccord Genuity adjusted its outlook on Alight Solutions (NYSE:ALIT), increasing the price target to $13.00 from the previous $12.00, while reiterating a Buy rating on the stock. The firm's decision comes in light of Alight Solutions' ongoing strategic review, which has indicated a positive shift in the company's financial structure and business model.
The strategic review of Alight Solutions has highlighted several improvements, such as a reduction in debt and an increase in margins. Additionally, there has been a significant rise in the portion of revenue that is recurring, as well as an increase in the proportion of as-a-service offerings. These changes are expected to enhance the company's valuation over time.
Canaccord Genuity's analysis suggests that there is potential for Alight Solutions' valuation to grow, especially considering the current 2024 enterprise value to adjusted EBITDA (EV/AEBITDA) multiple of approximately 8 times. The firm has adjusted its target multiple from 11 times to 12 times based on its 2025 EBITDA estimate, which has led to the new price target.
The analyst from Canaccord Genuity expressed confidence in the future valuation of Alight Solutions, stating, "Net net, we believe the results from the strategic review so far should drive the ALIT valuation framework upward over time -- less debt, higher margins, higher percentage recurring revenue, and a higher overall percentage of as-a-service in the mix." The analyst further noted the possibility of a revaluation, prompting the increase in the price target.
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