UPDATE: UBS Starts Babcock & Wilcox Enterprises (BW) at Buy
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Rating Summary:
4 Buy, 3 Hold, 1 Sell
Rating Trend: Up
Today's Overall Ratings:
Up: 9 | Down: 10 | New: 42
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UBS initiated coverage on Babcock & Wilcox Enterprises (NYSE: BW) with a Buy rating and a price target of $25.00. Analyst Steven Fisher sees the stock as a value story and he views guidance as conservative.
"We think BW is primarily a value story, with some growth and M&A opportunities. We expect revenue and EPS growth to be driven by emissions controls at industrial plant expansions, execution of the existing backlog, new renewable energy awards, and cost reductions. Given the strong backlog and cost cutting opportunities, we think there is upside to BW's 2016 guidance. BW is being spun with no debt and $5/sh of cash. On an EV/EBITDA basis, BW is trading at 5.2x 2016E EBITDA vs. peers of ~7.5x consensus," said Fisher.
"Mgmt did not bake in potential upside from tax rate initiatives, more cost reductions, or additional acquisitions (or alternatively future buybacks). We calculate that 11% 2016 EPS growth (mid-point of 10-12% guidance) off a base of $1.20 (2015E mid-point) is $0.13/sh. If mgmt. can achieve 100-150bps in 2016 margin improvement (half of the targeted 200-300bps improvement by 2017, and BW has already incurred 57% of the expected costs), on $1.7b of revenues, we calculate that BW could achieve more than $0.13 of EPS growth just from cost savings, leaving multiple paths for upside. We forecast 2015 EPS of $1.25, and 2016 EPS of $1.55," added the analyst.
For an analyst ratings summary and ratings history on Babcock & Wilcox Enterprises click here. For more ratings news on Babcock & Wilcox Enterprises click here.
Shares of Babcock & Wilcox Enterprises closed at $19.90 yesterday.
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