On Tuesday, Baird upgraded shares of Fortrea (NASDAQ:FTRE) from Neutral to Outperform, while simultaneously reducing the price target to $36 from $45. The adjustment reflects a cautious but optimistic outlook for the biotechnology company, which is now trading at approximately 14.5 times its projected 2024 earnings per share and 11 times its expected 2025 enterprise value to EBITDA ratio.
This valuation is compared to industry counterparts, which average around 18 times and 14 times those metrics, respectively.
The analyst at Baird cited a moderation in Fortrea's near-term growth expectations, as 2024 estimates fell below initial guidance, leading to a tempered forecast for 2025 and beyond. Despite the slower anticipated growth, the firm believes Fortrea's current share price accurately reflects these adjustments.
The revised price target accounts for the recent pullback in the stock's value, suggesting a potential buying opportunity for those with a long-term investment horizon.
Fortrea's stock performance requires a significant improvement in 2024 to justify investor enthusiasm, according to the analyst. However, the scarcity of biotech investment options for small-cap investors, along with a favorable view of the sector's long-term prospects, has contributed to Baird's decision to upgrade the stock rating.
The firm emphasizes that the new rating is geared toward patient investors who are willing to wait for Fortrea's potential to materialize in the coming years. Baird's stance is that while immediate returns might be limited, the long-term outlook for Fortrea remains positive, especially for those looking to capitalize on the company's future growth.
In conclusion, Baird's updated assessment of Fortrea suggests that the company's shares are trading at a reasonable level, given the revised earnings and growth estimates. The firm's analysts recommend a patient, long-term investment strategy for those considering Fortrea's stock, based on its valuation and the anticipated expansion of the biotech sector.
InvestingPro Insights
The latest data from InvestingPro provides a deeper insight into Fortrea's financial health and stock performance. With a market capitalization of $2.51 billion, Fortrea's valuation reflects the challenges it faces. The company's negative P/E Ratio of -31.60, adjusted to -33.04 for the last twelve months as of Q1 2024, underlines its current lack of profitability. However, according to InvestingPro Tips, analysts are predicting that Fortrea will become profitable this year, which could signal a turnaround for the company. Additionally, with a high EBITDA valuation multiple, Fortrea is trading at a premium compared to its earnings before interest, taxes, depreciation, and amortization, which could be a point of concern for value-focused investors.
The stock's recent performance has seen a significant decline, with a one-week total price return of -22.92% and a one-month return of -28.02%. This aligns with an InvestingPro Tip that suggests the stock is currently in oversold territory, indicating a potential rebound may be on the horizon for opportunistic investors. The revenue growth has seen a slight decrease of -0.13% over the last twelve months as of Q1 2024, and a more pronounced quarterly decline of -13.36%. Despite the recent setbacks, the long-term prospects highlighted by Baird could be bolstered by the company's anticipated profitability and the overall positive outlook for the biotech sector.
Investors interested in a more comprehensive analysis can explore additional InvestingPro Tips for Fortrea by visiting https://www.investing.com/pro/FTRE. Additionally, using the coupon code PRONEWS24 provides an extra 10% off a yearly or biyearly Pro and Pro+ subscription, offering access to a wealth of investment insights and data to guide decision-making.
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