On Friday, Baird, a financial services company, revised its stock price target for Centuri Holdings Inc (NYSE: CTRI), a player in the utilities construction sector. The firm's analyst increased the target to $23.00, up from the previous $21.00, while reaffirming an Outperform rating for the stock.
The analyst highlighted that fundamental trends for Centuri Holdings are showing signs of improvement, especially in the non-Union Electric segment where both crew numbers and crew hours have risen. This positive development is seen to counterbalance the ongoing utility rate pressures, particularly in the gas sector, which remains stable.
A potential challenge for the company is its offshore wind segment, which accounts for approximately 3% of its revenue. The current backlog of around $100 million is largely made up of two projects with Orsted (CSE:ORSTED), known as Sunrise and Revolution, which are expected to continue through 2025 and 2026.
Looking ahead to 2025, Centuri is anticipated to benefit from cost-saving programs that have already been implemented, which are estimated to contribute an incremental $8-10 million. These savings are likely to offset the higher-than-normal storm contribution experienced in the current year, assuming that storm contributions return to normal levels.
Year-to-date through October, storm contributions stood at approximately $135 million, compared to the historical average of $75-80 million per year, and yield margins roughly double the corporate average.
The analyst also pointed out that recent declines in the company's backlog may have been exaggerated, affected by the timing of Master Service Agreement (MSA) renewals, which constitute 87% of Centuri's backlog.
With six of the company's ten largest MSA customers set for renewal in 2025, near-term bookings are expected to increase significantly. Historically, the MSA renewal rate has been over 100%, often including added scope, which could serve as an under-appreciated positive catalyst for the company.
In addition to these developments, Centuri Holdings will be welcoming a new CEO, Chris Brown, who is set to start on December 3rd. However, he was not present at the time of the analyst's commentary.
In other recent news, Centuri Holdings Inc. reported a 16.6% decrease in revenue, adjusting its annual revenue guidance to $2.5 to $2.7 billion, down from the previous estimate of $2.9 billion. This was due to a shortfall in a natural gas bid project and reduced volume from existing Master Service Agreements. The company also announced the appointment of Christian Brown as its new CEO, succeeding Paul Caudill.
In contrast, JPMorgan (NYSE:JPM) has downgraded Centuri's stock from Neutral to Underweight, highlighting near-term challenges such as policy uncertainties. Similarly, UBS and BofA Securities have downgraded their ratings of Centuri's stock.
In addition to the CEO appointment, Centuri has undertaken other leadership changes, appointing Dylan Hradek as President of US Gas and Jim Connell as Executive Vice President, Chief Commercial & Strategy Officer. These recent developments provide investors with a clearer picture of the evolving landscape for Centuri Holdings Inc.
InvestingPro Insights
Centuri Holdings Inc (NYSE: CTRI) presents an intriguing investment case, with recent data from InvestingPro shedding light on the company's financial position and market performance. Despite the challenges highlighted in the article, particularly in the offshore wind segment, InvestingPro Tips reveal that net income is expected to grow this year, and analysts anticipate the company will be profitable. This aligns with the analyst's positive outlook on the company's improving fundamental trends.
The company's market capitalization stands at $1.8 billion, with a price-to-book ratio of 3.41 as of the last twelve months ending Q3 2024. Notably, CTRI has shown strong returns over the last month and three months, with price total returns of 14.29% and 28.45% respectively. This recent performance supports the analyst's decision to raise the price target and maintain an Outperform rating.
However, investors should note that CTRI suffers from weak gross profit margins, with a gross profit margin of 7.87% in the last twelve months. This underscores the importance of the cost-saving programs mentioned in the article, which could help improve profitability.
For those seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for CTRI, providing deeper insights into the company's financial health and market position.
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