William Blair initiated research coverage of Federal Signal Corporation (FSS $87.25), a manufacturer of specialty commercial vehicles and audio and visual warning equipment for municipal, state, and federal government and industrial end-markets.
Analyst Ross Sparenblek estimated that the company would generate revenue of $1.87 billion in 2024, rising from $1.72 billion in 2023, and increasing to a projected $2.03 billion in 2025.
“Over the better part of the last decade, Federal Signal has established itself as high-quality industrial compounder with an ability to not only drive strong organic growth, but also accretively add to its market-leading platform of specialty commercial vehicle businesses,” said Sparenblek. “We expect Federal Signal to continue expanding its already-leading market share position across these niche, fragmented markets while also growing its aftermarket business, creating a multiyear high-single-digit organic growth outlook. In addition, federal infrastructure spending and the continued adoption of hydro excavation are set to drive additional growth through the decade.
“Further, Federal Signal’s elevated backlog should provide a multiyear tailwind to organic growth and drive near-term margins close to the upper end of the recently increased through-cycle margin targets, as the company begins to use the substantial idle capacity across its manufacturing footprint,” added Sparenblek. “Over the longer term, we expect management to continue driving internal efficiencies and expanding its aftermarket business, further supporting outsized incremental margins through-cycle.”
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