SiteOne Landscape Supply saw a bump in its share price Tuesday after UBS upgraded the stock to Buy from Neutral.
Analysts at UBS cited an anticipated earnings inflection in the second half of this year and a potential acceleration to double-digit growth in 2024 and 2025.
The investment bank also raised its price target to $200 from $145.
The key factors underpinning the rating upgrade include the observation that earnings for SiteOne have bottomed, with EBITDA growth expected to turn positive in the second half of the year.
“(SiteOne) has underperformed building products and distributor peers since 4Q22 results, and relative valuation is at the low end of historical band, presenting an attractive buying opportunity as growth reaccelerates, in our view,” analysts wrote.
Furthermore, the company's business appears to be relatively resilient to macroeconomic risks due to a significant maintenance mix of 36% and a resolution of demand pull-forward from 2020-21.
UBS also highlights recent momentum in deals as a driver for growth acceleration, noting that SiteOne Landscape Supply Inc possesses the balance sheet capacity, pipeline, and capable management team to significantly expand its acquisitions.
“We think the stock is mispricing both underlying market/business growth, as well as (SiteOne’s) recent acquisitions and M&A firepower,” UBS analysts wrote.
UBS analysts believe the market underestimates SiteOne's potential, with share prices reflecting organic sales growth of (LSD%)-0% and marginal expansion of ~0-50bps over the next two years, compared to UBS estimates of 2% organic growth and +60bps margin expansion.
Shares of SiteOne were up as much as 3% on Tuesday morning before settling around 1.7% higher in afternoon New York trading.