Citi upgrades Downer’s earnings forecasts and price target

Published at Feb 3, 2017, in Features

Citi has responded positively to Downer EDI’s first half result which represented a significant outperformance against the broker’s forecasts at both the EBIT and net profit lines.

The engineering and construction group’s net profit of $78.2 million was more than 10% higher than Citi’s expectations of $70 million.

Furthermore, the broker pointed to management’s full-year profit upgrade from $163 million to $175 million (+7%) as representative of a positive outlook which warranted revisions of its earnings estimates and price target.

Citi upgraded its forecasts for fiscal years 2017 and 2018 by 7% and 9% respectively. Along with this strong performance, most analysts see the company entering a purple patch in 2018 as the level of activity in the infrastructure and utilities sectors accelerates.

Mining sector recovery could help Downer

While the downturn in the mining sector placed a drag on the company in recent years, the fact that the balance sheets of mining companies have strengthened substantially in the last 12 months suggests there could be investment in new projects, which would have a positive impact on Downer.

Citi increased its share price target from $6.15 to $7.30, and while this still represents a premium to yesterday’s closing price of $7.07 the broker has a neutral recommendation on the stock.

After the stock traded as high as $7.46 yesterday some technical analysts were suggesting that the company could be poised to push up towards $8.00 in the near term.

It should be noted that broker projections and price targets are only estimates and may not be met. Also, historical data in terms of earnings performance and/or share trading patterns should not be used as the basis for an investment as they may or may not be replicated. Those considering this stock should seek independent financial advice.

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