Oppenheimer has increased the price target for Knife River Corp. (NYSE: KNF) to $110, up from the previous $85, while maintaining an Outperform rating on the stock.
The firm's analyst expects strong third-quarter results for 2024, which are set to be reported on November 4. The positive outlook is based on a robust aggregate market and continued support from infrastructure spending due to the Infrastructure Investment and Jobs Act (IIJA).
The analyst predicts that Knife River could achieve EBITDA margins above 20% over the medium term, compared to the approximately 16% expected in 2024. The company has seen price increases for aggregates and ready-mix expected to be in the high single digits this year, with the possibility of maintaining pricing momentum into 2025 with mid to high single-digit increases.
The revised price target of $110 is based on a 13.3 times multiple of the projected 2025 EBITDA, compared to the peer average of about 13.8 times. Furthermore, Oppenheimer has raised its forecast for the company's 2025 EBITDA to $514 million from $505 million, reflecting an expected increase in year-over-year margin expansion. The Outperform rating has been reaffirmed in light of these positive developments.
In other recent news, Knife River Corp's earnings per share reached $1.37, surpassing the consensus estimate of $1.24, while revenues were in line with projections. Loop Capital has increased the price target for Knife River to $105 from $89, maintaining a Buy rating on the stock. BofA Securities and DA Davidson have also raised their price targets for Knife River to $99 and $90 respectively, and maintained their Buy ratings.
Knife River has adopted a new Change in Control Severance Plan (CIC Plan) for its executive officers, providing them with certain benefits if their employment is terminated under specific conditions following a company control change. The company also plans to modify its policy for employee equity awards, transitioning to a "double trigger" change in control vesting from 2025.
InvestingPro Insights
Knife River Corp.'s recent performance aligns with Oppenheimer's optimistic outlook. According to InvestingPro data, the company's EBITDA growth stands at an impressive 31.22% for the last twelve months as of Q2 2024, indicating strong operational efficiency. This growth supports the analyst's prediction of potential EBITDA margins exceeding 20% in the medium term.
The company's revenue growth of 10.27% over the same period, coupled with an operating income margin of 11.32%, suggests that Knife River is effectively capitalizing on the robust aggregates market and infrastructure spending, as highlighted in the article.
InvestingPro Tips reveal that Knife River is trading at a low P/E ratio relative to near-term earnings growth, with a PEG ratio of 0.55. This metric could indicate that the stock is undervalued considering its growth prospects, potentially supporting Oppenheimer's increased price target.
Additionally, Knife River's strong return over the last year, with a one-year price total return of 87.4%, and its current trading near its 52-week high (98.3% of the high) align with the positive sentiment expressed in the article.
For investors seeking more comprehensive analysis, InvestingPro offers 11 additional tips for Knife River Corp., providing a deeper understanding of the company's financial health and market position.
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