On Friday, Citi adjusted its outlook on Schindler Holding AG (SCHN:SW) (OTC: SHLAF), increasing the price target to CHF255.00 from the previous CHF230.00, while keeping a Neutral rating on the stock. The adjustment comes in light of recent developments that are expected to influence the company's medium-term growth prospects.
The analyst at Citi highlighted that the growth acceleration in the Modernization (Mod) business and the announced share buyback program are significant events that could lead to a reassessment of Schindler's value. These initiatives are seen as positive steps towards potentially increased cash returns to shareholders. Despite the buyback being described as relatively modest, it indicates Schindler's openness to future mergers and acquisitions (M&A) opportunities.
Schindler's financial position remains robust, with a well-capitalized balance sheet that is primed for potential bolt-on acquisitions. However, the firm does not anticipate any immediate strategic M&A activities. Citi's analyst also advised caution, suggesting that it may be premature to expect a sharp acceleration in sales growth for 2025 due to a weaker backlog.
The forecast also points to some margin pressures towards the year's end, as indicated by the fiscal year 2024 guidance. The estimated clean margin for the fourth quarter is thought to be around 11.9%, which is an increase from the previous year but slightly lower compared to the third quarter of 2024, excluding a CHF14 million one-time positive effect. The expected margin reflects the impact of slower price/mix changes and reduced volumes in China, leading to a modestly lower fourth-quarter clean/reported EBIT compared to market expectations.
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