Aecon Group: Analysts Downgrade Valuations on Cash Flow Warning

Aecon Group: Analysts Downgrade Valuations on Cash Flow Warning

Aecon (ARE:CA) Stock Analysis

Aecon Inc., a major Canadian construction and infrastructure development company, faced concerns regarding its cash flow situation, as a consequence several prominent financial institutions adjusted their coverage on the stock.

RBC Capital (Sector Perform, CAD 13)

RBC Capital (Analyst Rank #3 of 355) downgraded Aecon’s rating to “Sector Perform” from its previous stance, and simultaneously lowered its price target to CAD 13. This change suggests RBC’s view that Aecon’s performance may align with the broader sector’s average, reflecting caution about the company’s near-term prospects.

BMO Capital Markets (Market Perform, CAD 17.5)

BMO Capital Markets (Analyst Rank #12 of 355) revised Aecon’s rating to “Market Perform” and adjusted its price target to CAD 17.5. This rating implies that BMO sees Aecon’s stock performing in line with the overall market, indicating a neutral stance towards the company’s stock amidst recent developments.

Desjardins Securities (Buy, CAD 18)

Desjardins Securities (Analyst Rank #12 of 355) maintained a “Buy” rating on Aecon but lowered its price target to CAD 18. This indicates Desjardins’ belief that despite the challenges, Aecon’s stock still presents an opportunity for growth, albeit with a reduced target reflecting recent uncertainties.

Stifel Nicolaus (Hold, CAD 16.25)

Stifel Nicolaus (Analyst Rank #24 of 355) retained a “Hold” rating on Aecon and set a price target of CAD 16.25. This suggests Stifel Nicolaus’ view that investors should maintain their current positions without actively buying more shares, reflecting a neutral outlook on Aecon’s near-term performance.

TD Securities (Hold, CAD 16)

TD Securities (Analyst Rank #17) lowered Aecon’s target from CAD 18 to CAD 16. TD also maintained the “Hold” rating. This adjustment indicates TD Securities’ belief that Aecon’s stock is currently priced appropriately relative to its expected performance, advising investors to hold onto existing positions, but avoid accumulation..

STA Research (Hold, CAD 15)

STA Research (Analyst Rank #9 of 355) maintained a 12 month target price of $15 and a “Hold” rating on Aecon stock, reflecting their current assessment of the company’s potential.

Aecon Stock Forecast & Analysis

Analyst Consensus and Target Price

  • Average Analyst Target Price: Based on forecasts from 12 analysts, the average target price for Aecon Group Inc. is CAD 17.37 over the next 12 months. This suggests analysts generally believe there is potential for the stock price to increase from its current level.
  • Average Analyst Rating: The average analyst rating for Aecon is “Buy”, indicating a positive sentiment among analysts regarding the stock’s future performance.

Stock Performance and Recent Changes

  • Recent Stock Price Movements: At the last closing, Aecon’s stock price was CAD 14.01. Over recent periods, the stock has experienced volatility:
    • Weekly Change: -15.50%
    • Monthly Change: -14.73%
    • Annual Change: +13.26%

Stock Target Advisor’s Analysis

  • Neutral Rating: Stock Target Advisor’s analysis categorizes Aecon as “Neutral”, based on a balance of 7 positive signals and 7 negative signals.

Positive Fundamentals (Bullish Indicators):

  • Low Debt: Aecon is less leveraged than its peers, which enhances its flexibility and financial stability.
  • Underpriced Metrics: The stock appears underpriced compared to book value, earnings, and free cash flow when benchmarked against its industry peers.
  • Positive Cash Flow: Aecon has demonstrated positive total and free cash flow in the most recent quarters.
  • Superior Total Returns: The stock has outperformed its sector peers in terms of average annual total returns over the past five years.

Negative Fundamentals (Bearish Indicators):

  • Poor Return on Assets: Aecon’s management has delivered below median return on assets compared to its industry peers.
  • High Volatility: The stock exhibits higher volatility in total returns compared to its sector average, suggesting it may not be suitable for all investors.
  • Risk Adjusted Returns: Despite superior total returns, Aecon’s risk-adjusted returns are below median, indicating unpredictability in performance.
  • Low Market Capitalization: Aecon is among the smaller entities in its sector in terms of market capitalization, which can affect its stability unless it demonstrates strong growth potential.

Final Analysis

Investors should consider the mixed signals from analysts and Stock Target Advisor’s neutral stance, reflecting uncertainties and potential risks associated with Aecon. While the stock shows potential for growth based on target prices and positive cash flow indicators, caution is advised due to its volatility and lower returns on assets compared to industry benchmarks.

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