Oppenheimer boosts Knife River shares target on margin growth By ...

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Friday - Oppenheimer has increased the price target on Knife River Corp. shares (NYSE: KNF) to $85 from $75, while maintaining an Outperform rating. The firm attributes this optimistic outlook to the company's successful margin expansion strategies and the potential for increased earnings before interest, taxes, depreciation, and amortization (EBITDA) margins in the near future.

According to Oppenheimer, Knife River's EBITDA margins could reach approximately 20% within the next three years, a significant rise from the 15.3% to 15.6% projected in 2023 and 2024. This expectation is based on the company's implementation of a dynamic pricing system, pursuit of higher-margin jobs, an increased mix of aggregates, and the pursuit of larger acquisitions.

The construction materials company is expected to continue benefiting from robust federal, state, and municipal infrastructure spending. State budgets within Knife River's operational footprint are anticipated to increase by 16% year-over-year, which should support the company's growth.

Oppenheimer also noted the stability of Knife River's Contracting Services, which is heavily reliant on public work, with 84% of its backlog tied to such projects. This reliance on public sector contracts is seen as a buffer against market volatility, providing a steady stream of business.

The new $85 price target represents a valuation of 11.7 times the projected 2024 EBITDA and 10.9 times the 2025 estimate. This is notably lower than the peer group average, which stands at 13.4 times and 12.1 times, respectively, indicating a more conservative valuation for Knife River in comparison to its competitors.

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