Updated - Financial Forecast and Valuation thru FY 2027
Based on the last several earning reports I have updated my financial projection and valuation to incorporate the current positive momentum in results. Below are the drivers of performance.
Gross margins continue to expand from the IBM days. Last quarter gross margins exceeded 19% versus 12% in FY 2022. Last quarter was ahead of my last forecast. I have increased my gross margin outlook to over 24% in FY 2027 as they continue to address low margin accounts and increase mix of higher margin consulting revenue. I still have gross margins below the industry level of 29%.
Sales are projected to be soft in the first 2 quarters of FY2025 but improve in the second half of the year as the comps get easier and the impact of addressing low margin accounts become less of a drag. I still have sales growth resuming in FY2026 assuming 2.5% real growth and 2.5% inflationary growth. Their contracts have a CPI provision making realizing this pricing more likely.
Currently projections have limited restructuring and spinoff costs after FY 2024 given this cost has been mostly realized in the last 3 years.
Based on my outlook, I am projecting $1.20/share earnings in FY 2025 growing to over $3/share in FY 2027.
Using a market multiple for competitors (26 trailing PE and 21 forward PE) my 12-month price target range is $25 to $31/share and a range of $65 to $82/share in FY2027 with a midpoint of $73/share. Analyst consensus is $28/share.
Below are my earnings forecast and market comparable multiples for select competitors.
Comments