Seaport Global Securities Downgrades CECO Environmental (CECE) to Neutral
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Seaport Global Securities downgraded CECO Environmental (NASDAQ: CECE) from Buy to Neutral and maintains a $13 price target, citing challenging project environment.
Analyst Ryan Cassil commented, "We are reducing our rating to Neutral (from Buy) as shares of CECE approach our price target of $13 (unchanged) and the story becomes less about deleveraging the balance sheet and integrating the formerly inefficient PMFG business and more about driving organic growth. Part of our thesis for the company was predicated on reducing SG&A costs that topped 22% of sales following the PMFG deal, which now appear sustainably below 20% as management reduced the duplicative footprint and drove cost synergies from the once unprofitable PMFG business. In concert with driving these synergies, CECE reduced net leverage, which ended 2015 with net debt/EBITDA at 3.0x, to an estimated 1.4x ending 2016 by using stronger cash flows from operations and sale leasebacks of PMFG assets. The two pillars of these actions have largely played out and CECE now must find organic growth in what is expected to be a challenging industrial environment in the US and China. Management noted the need to be more aggressive on pricing with large projects being bid in Q4, which will cap on margins and overall top-line growth in the intermediate term. CECE does stand to benefit should there be an increase in corporate investment with the new President-elect in the United States, but we can't bank on it. However, on the positive side, we continue to favor the push for greater aftermarket/recurring revenue growth over the long term and believe shareholders will be rewarded through better margins and a reduced level of top-line cyclicality."
Shares of CECO Environmental closed at $12.87 yesterday.
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