On Monday, JPMorgan made a positive adjustment to ESAB Corporation's (NYSE:ESAB) stock, upgrading the rating from Neutral to Overweight and increasing the price target to $125.00 from the previous $111.00. The firm anticipates ESAB to become a growth compounder, expecting high-teens percentage earnings per share (EPS) growth through 2028.
The upgrade comes with a forecast of at least long-term mid-single-digit percentage (LTMSD%) upside to consensus EPS estimates, driven by potential mergers and acquisitions (M&A) activity in 2024.
The analyst highlighted ESAB's organic sales growth guidance for 2024, which ranges from 2.5% to 4.5%. This forecast is considered conservative, especially when compared to Illinois Tool Works Inc.'s (NYSE:ITW) Welding segment, which projects 3-5% growth, and Lincoln Electric Holdings Inc . (NASDAQ:LECO), which is not covered by the analyst but is expected to have LTMSD% growth for the fiscal year 2024.
ESAB's focus on high-growth markets such as India and the Middle East is also seen as a strategic advantage that could drive organic growth acceleration beyond 2024, with approximately 40% of its business mix targeted towards these higher growth end markets.
The new price target of $125 is based on approximately 24 times the fiscal year one (FY1) price-to-earnings (PE) ratio, which is about two times lower than that of LECO, its larger peer. The valuation also includes the assumption of a 22 times FY1 PE ratio, considering LTMSD% EPS accretion annually from potential M&A activities. ESAB's current trading at around 21 times FY1 consensus estimates suggests there is room for a valuation re-rate.
JPMorgan believes ESAB should command a 10-20% premium compared to the market, recognizing its potential as a growth compounder in the medium to long term.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.