UBS Initiates Coverage on WSP Global Inc. Stock with Buy Rating and C$262.00 Price Target
UBS, a leading global investment firm, recently started coverage on WSP Global Inc. (WSP:CN) (OTC: WSPOF) stock with a Buy rating and set a price target of C$262.00. The firm believes that WSP Global has the potential to benefit from increased global infrastructure and structural investment, making it an attractive investment opportunity.
The analysis conducted by UBS suggests that WSP Global's cash flow, which has been impacted by temporary factors like ERP system costs and tax headwinds, is expected to normalize within the next one to two years. This normalization is expected to lead to a higher conversion rate, with UBS anticipating a significant rise in free cash flow (FCF) for WSP Global by 2026, reaching approximately C$1.5 billion. This represents a 53% conversion to adjusted EBITDA, surpassing the consensus estimate of C$1.3 billion and a 48% conversion rate.
Furthermore, UBS predicts a margin improvement of around 130 basis points between 2024 and 2026, driven by operating leverage and cost optimization strategies. This improvement is significantly higher than the consensus estimate of approximately 80 basis points.
UBS also notes that WSP Global's stock is currently trading at a discount compared to its three-year average EV/EBITDA multiple. The firm expects that as WSP Global continues to deliver on its financials, the valuation gap will close, potentially leading to an approximate 15% upside for the stock.
However, UBS acknowledges the risks involved, particularly concerning the execution of M&A integration with Power Engineers and the possibility of macroeconomic weakness that could slow down government and private investment.
In conclusion, based on UBS's analysis, WSP Global Inc. stock presents a promising investment opportunity with the potential for significant growth in the coming years. Investors should consider the firm's Buy rating and price target of C$262.00 as they evaluate their investment portfolios.