On Monday, Morgan Stanley updated its outlook on KION Group AG (KGX:GR) (OTC: KIGRY), increasing the price target to €44 from the previous €38, while maintaining an Equalweight rating on the stock. The adjustment follows KION's fourth-quarter results for 2023, which prompted the firm to revise its forecasts for the industrial truck and supply chain solutions provider.
The updated sales forecast for 2024 now reflects a 2% improvement, attributed to a stronger performance in the Industrial Truck Segment (ITS), although this is somewhat tempered by a slower growth projection for the Supply Chain Solutions (SCS) division.
For 2025, the sales forecast sees a more significant 4% increase, driven by an expected acceleration in the ITS order book in the second half of the year and anticipated deliveries for SCS.
Adjusted earnings before interest and taxes (EBIT) are projected to remain relatively stable for 2024, with a slight 1% decrease. However, the forecast for 2025 suggests an 8% increase, as margins within the SCS division are expected to recover. Despite these positive adjustments, the estimated earnings per share (EPS) for 2024 have been reduced by 7% due to an increase in financial expense estimates.
The rationale behind the increased price target includes a change in market multiples for both ITS and SCS segments, reflecting a material re-rating of peer groups year-to-date amidst signs of an improving short cycle.
Additionally, the firm has rolled forward its discounted cash flow (DCF) analysis to 2024, which now incorporates a higher terminal value. This adjustment is based on the expectation of a less punitive terminal working capital outflow, from -1.3% to -0.7% of sales, recognizing KION's demonstrated ability to improve in this area.
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