Babcock International shares jumped 4.6%, supported by an upbeat assessment from Bank of America which sees around 50% upside from current levels.
In a research note, the bank initiated coverage of the British aerospace, defence and nuclear engineering services company with a 'buy' rating and a price target of 585p.
Shares were trading at around 400p each mid-morning on Monday.
“The company is in the early stages of its turnaround, but we are already seeing the first positive effects of the restructuring,” BofA analysts said.
The bank highlighted three key points.
Firstly, it estimates around 140 basis points of margin expansion through to 2026, which should be supportive of better free cash flow (FCF) generation.
Secondly, it sees FCF inflecting from the financial year 2024, leaving room for shareholder returns.
Thirdly, BofA estimates the firm could generate c.80% of revenues through defence markets in the financial year 2026 vs 61% in 2023.
This should underpin a re-rating from around 6x EV/Ebit and c.7x earnings on 2026 estimates to 11x & 12x respectively, it believes.