On Tuesday, Wells Fargo showed confidence in UL Solutions Inc (NYSE: ULS) shares, raising its price target to $43.00, up from the previous $40.00, while maintaining an Overweight rating on the company's stock. The adjustment comes despite a reduction in revenue expectations for the years 2024 and 2025.
The firm now anticipates revenues of $2.815 billion for 2024 and $2.970 billion for 2025, a slight decrease from the prior estimates of $2.840 billion and $3.005 billion, respectively.
The revised revenue forecast is attributed to a $40 million decline in Industrial revenue following the recent sale of UL Solutions' payments testing business, which was finalized on May 1.
However, this impact was partially balanced by a projected increase in the Organic Compoundable Growth (OCC) rates, which are now expected to be 6.3% for 2024 and 6.0% for 2025, up from the previous 6.0% and 5.8%.
Despite the lowered revenue projections, Wells Fargo has left its margin forecasts largely unchanged. The firm's estimates for UL Solutions' EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) stand at $646 million for 2024 and $707 million for the following year, slightly adjusted from the earlier figures of $651 million and $719 million.
The increased price target to $43 reflects a valuation pegged at 13 times Wells Fargo's EBITDA estimate for 2025. This valuation indicates a level of optimism about the company's financial health and its ability to maintain profit margins in the coming years. UL Solutions' stock price target upgrade is based on the firm's analysis of the company's adjusted earnings potential and market position.
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