Downer EDI extends gains as FY results trigger analysts' upgrades
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The news: Downer EDI was the best performing ASX 200 stock in morning trade, extending double-digit gains on Friday, after the engineering and services group's full-year results impressed analysts.
The numbers: Downer shares were up 4.8% to $5.86 by 11:35am AEST, having surged 16.95% on Friday after the group reported annual earnings that beat consensus estimates.
Macquarie analysts retained their 'neutral' rating on the stock but raised their 12-month target price from $4.86 to $5.77. They also increased their earnings per share (EPS) forecasts by 6% in both FY25 and FY26, and by 7% in FY27.
Morningstar increased its fair value estimate on Downer by 7% to $6.15. It also lifted its FY25 and FY26 EPS forecasts by 15% and 27%, respectively. This was driven by Downer's average EBITA margin target of 4.5% over the next two fiscal years, compared with 3.3% in FY24 and 2.6% in FY23.
The context: Macquarie analysts said that Downer's underlying NPATA in FY24 was 3% above consensus estimates, driving a large stock price move with capitalisation of expected FY25 earnings growth.
Morningstar analyst Mark Taylor noted that he still sees Downer's shares "somewhat undervalued" at $5.60, while ongoing contract awards and persisting earnings improvement from the first half of FY23 remaining the likely key catalysts for ongoing share price re-ratings.
What they said: "No-moat urban services Downer reported a strong fiscal 2024 result and added to it with a bullish outlook statement," Taylor said.
"This is a far cry from the company of just 18 months ago, weathering market ire over accounting irregularities and weather disruptions, along with a plunge in earnings," he said.
The sources: Macquarie research, Morningstar research
