Brink's Focus On Technology Is Key

Imperial Capital has downgraded Brink's Company BCO to In Line from Outperform on valuation. But, the brokerage increased its price target by $4 to $42 on better-than-expected quarterly results.

For the third quarter, the company’s non-GAAP revenue of $735 million was above Imperial’s estimate of $727 million and adjusted EPS of $0.64 topped Imperial’s view by a penny.

Since Imperial’s last report in early August, shares of Brink’s climbed about 23 percent to more than $40.

“Although the company reported improving results, at its current valuation, we believe that some of the near-term optimism is already baked into the current share price,” analyst Jeff Kessler wrote in a note.

Meanwhile, the new CEO, Doug Pertz, is relying on technology to improve Brink’s operational effectiveness, cut costs and improve customer service and expectations.

Kessler believes Brink’s North American operations could be improved by increasing performing branches, driving higher revenue, focusing more on higher margin services and strengthening U.S. management team.

However, the analyst is not expecting “smooth financial improvements” from these initiatives in the near-term due to the seasonal imbalance of revenues skewed towards the latter part of the year.

“We believe that more investor patience may be warranted as the stock works its way higher, as we believe it will over the next year. Quarter-by-quarter results may be somewhat challenged, however, we believe full-year 2016 and 2017 can provide double-digit growth in operating earnings, EBITDA, and EPS,” Kessler noted.

Looking ahead, the analyst forecast corporate operating margins could improve to 7.8 percent by the end of 2017, up from 6.9 percent in 2016 and up from 5.3 percent in 2015. Further, Kessler also expects the Mexico business to “reach or exceed the 10 percent margins” that the company is targeting over the next few years.

At the time of writing, shares of Brink’s closed Thursday’s trading at $40.64.

Image Credit: By ציון הלוי (אני צלמתי) [Public domain], via Wikimedia Commons.
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Posted In: Analyst ColorEarningsNewsGuidanceDowngradesPrice TargetAnalyst RatingsDoug Pertzimperial capitalJeff Kessler
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