On Tuesday, Compass Point adjusted its price target for Fortress Transportation (NASDAQ:FTAI) shares, increasing it to $96.00 from the previous $88.00 while maintaining a Buy rating on the stock.
The revision follows Fortress Transportation's announcement that it has ended its external management and advisory agreement with Fortress Investment Group effective May 28.
The company will transition to an internally managed structure, a move that involves a payout of approximately $307 million to Fortress Investment Group, including $150 million in cash, the issuance of 1,866,949 FTAI shares, and the settlement of accrued unpaid compensation.
The transaction is expected to be beneficial to FTAI's valuation, with projected annualized cost savings of around $30 million. The previous valuation model applied an 11x multiple to these savings, which would theoretically add approximately $330 million in equity value to the company, surpassing the cost of the buyout.
Additionally, these cost savings could potentially increase by $15 million to $25 million or more annually after the fiscal year 2024, further enhancing the value of the transaction over time.
According to Compass Point's analysis, the management internalization should prompt a positive response from the market and lead to a higher valuation multiple for FTAI shares. In light of these developments, the firm has raised its valuation multiple to 12x from 11x and reiterated its Buy rating.
The new price target of $96 is based on 12x the firm's projected EBITDA for the fiscal year 2026, which is estimated to be $1,024 million.
InvestingPro Insights
In addition to the promising internal management transition at Fortress Transportation (NASDAQ:FTAI), InvestingPro data shows compelling metrics that could interest investors. With a market capitalization of $8.12 billion and a robust revenue growth of 32.49% over the last twelve months as of Q1 2024, FTAI is demonstrating significant scalability. Moreover, the company boasts a considerable gross profit margin of 49.19%, underlining efficient operations and strong pricing power.
InvestingPro Tips highlight that analysts expect the company to be profitable this year, with an impressive gross profit margin and sales growth anticipated in the current year. These factors, combined with FTAI's perfect Piotroski Score of 9, which indicates a healthy financial state, could be a signal for investors looking for solid fundamentals. Additionally, the company's liquid assets exceeding short-term obligations suggest a comfortable liquidity position.
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