On Tuesday, UBS updated its outlook on Perimeter Solutions SA (NYSE:PRM), increasing the price target to $7.00 from the previous $6.50. The firm has decided to maintain a Neutral rating on the stock. The adjustment comes after an announcement by Compass Minerals, which did not secure a contract for the 2024 fire season with its Fortress fire retardants product line.
The absence of a contract for Compass Minerals has led UBS to revise its expectations for Perimeter Solutions. With less competition anticipated for the 2024 season, the firm projects an increase in both volume and price for Perimeter Solutions' offerings. Consequently, the estimated EBITDA for the company is now set at $169 million, marking a 7% rise.
Compass Minerals has indicated that its Fortress magnesium chloride-based aerial fire-retardant formulation is unlikely to be used in the near future. This information has prompted UBS to adjust its price expectations for Perimeter Solutions for the years 2025-2026 to a mid-single-digit percentage increase, which is in line with historical rates and higher than the low-single-digit percentage previously projected due to the potential for increased competition.
Despite the positive adjustment for the short term, UBS expresses caution regarding the long-term prospects of the fire retardant business. The firm anticipates a "return to mean" dynamic rather than a trend line growth trajectory. This approach still forecasts a significant year-over-year increase in EBITDA for 2024, based on an expected recovery from a weak 2023 fire season, with an estimated 75% increase year-over-year.
Looking further ahead, UBS models a compound annual growth rate (CAGR) of 6% for Perimeter Solutions' EBITDA. The revised price target of $7.00 reflects these updated estimates and assumptions, while the firm's stance on the stock remains Neutral.
InvestingPro Insights
Perimeter Solutions SA (NYSE:PRM) has shown a robust performance in the market with a significant return over the last three months, showing a 58.11% increase. The company's aggressive share buyback strategy, as highlighted in one of the InvestingPro Tips, could signal confidence from management in the company’s prospects and may have contributed to the stock's recent appreciation.
With a current market capitalization of $1050M and an adjusted P/E ratio of 11.23 for the last twelve months as of Q4 2023, Perimeter Solutions seems to be valued reasonably in comparison to its earnings. The company's liquid assets also exceed short-term obligations, suggesting a solid financial position to meet its immediate liabilities.
Investors looking to delve deeper into Perimeter Solutions' financial health and future prospects can find additional insights and InvestingPro Tips by visiting https://www.investing.com/pro/PRM. There are currently 10 additional tips available on InvestingPro, which could provide a more comprehensive understanding of the company's performance and potential investment opportunities.
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