B.Riley sees challenges ahead for L.B. Foster stock amid weaker rail demand
On Wednesday, B.Riley adjusted its outlook on L.B. Foster Company (NASDAQ:FSTR) stock, reducing the price target from the previous $27.00 to $21.00, while maintaining a Neutral rating.
The revision follows the company’s second-quarter earnings report on August 6, which did not meet expectations, influenced by reduced volumes and softer pricing in rail products, as well as weather-related challenges affecting precast concrete products.
L.B. Foster’s total backlog has decreased by 14% year-over-year to $250 million, attributed in part to divestitures and weaker commercial demand. However, the backlog showed a sequential increase of 13%.
In response to the quarterly performance, management has revised down the upper end of its 2024 guidance but has affirmed its revenue and adjusted EBITDA targets for 2025.
The firm anticipates that sales in the second half of the year will modestly surpass those in the first half and will yield better profitability. This is expected due to a strategic shift in each business segment towards products and services with higher margins.
Despite the disappointing second quarter, B.Riley believes that L.B. Foster’s management is successfully transitioning its portfolio towards areas with the potential for higher growth and margins.
The analyst’s report reflects a cautious outlook for L.B. Foster, noting that while there were positive developments in the first quarter of 2024, these did not carry over into the second quarter.
The current economic uncertainty is cited as a factor that may continue to influence the company’s performance in the near term, prompting the decision to lower the price target while reiterating a Neutral rating.
In other recent news, L.B. Foster has experienced a series of developments that have influenced its financial outlook. Singular Research has revised the company’s stock outlook, reducing the price target to $27.50 from the previous $34.50. Despite this, the firm retains its Buy rating, anticipating better organic growth and margin expansion in the latter half of the year.
This outlook follows L.B. Foster’s Q2 2024 performance, which fell short of expectations due to a weakened rail market that impacted volumes and pricing.
The company reported a net income of $7.3 million for the quarter and a 5.5% year-to-date increase in organic sales. L.B. Foster’s restructuring efforts in the UK have reportedly led to efficiency improvements and a stronger focus on technology and customer operations.
Furthermore, despite macroeconomic uncertainties and weaker-than-expected Q2 results, the company projects a 12% increase in adjusted EBITDA for 2024 and improved free cash flow in the second half of the year.
These recent developments underline the company’s resilience and adaptability in the face of challenging market conditions. As L.B. Foster navigates this period of strategic transformation, it continues to foster optimism for its growth prospects and long-term financial health.
InvestingPro Insights
Following the recent analysis by B.Riley on L.B. Foster Company (NASDAQ:FSTR), InvestingPro provides a deeper perspective into the company’s financial health and stock performance. With a market capitalization of $207.84 million, L.B. Foster is trading at a price-to-earnings (P/E) ratio of 27.98, suggesting investors are paying a premium relative to the company’s earnings. Notably, the company’s adjusted P/E ratio for the last twelve months as of Q2 2024 stands at 37.33, which is high, but this is counterbalanced by a low PEG ratio of 0.24, indicating the stock may be undervalued based on its expected earnings growth.
InvestingPro Tips highlight that L.B. Foster is anticipated to have net income growth this year and is trading at a low P/E ratio in relation to near-term earnings growth, which could attract value investors. Moreover, the company’s liquid assets exceed its short-term obligations, providing financial stability. Despite recent price volatility—with significant returns over the last week but a poor performance over the last month—analysts predict profitability for the year. These factors, combined with the company’s strategic shift towards higher-margin products and services, may offer a promising outlook for investors.
For those seeking more comprehensive analysis, additional InvestingPro Tips are available, providing valuable insights into L.B. Foster’s future prospects. With a total of 9 InvestingPro Tips listed on https://www.investing.com/pro/FSTR, investors can gain a more nuanced understanding of the company’s potential and make informed decisions.
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