The Aurizon Holdings Ltd (ASX: AZJ) share price is down 0.62% to $3.23 at the time of writing on Wednesday afternoon. Over the year, Aurizon's shares are changing hands 4.72% lower.
The company's share price has fallen 3% since it posted its FY25 financial results on Monday morning.
The company reported a 14% drop in its underlying net profit after tax (NPAT) and a 3% drop in its underlying EBITDA. Revenue was 3% higher year-on-year.
The rail freight operator also announced a new $150 million share buyback for FY26.
Following the announcement, Macquarie Group Ltd (ASX: MQG) wrote a note to investors revealing the broker's stance on the stock.
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Macquarie's outlook on Aurizon shares
Macquarie has confirmed its neutral rating on the company's shares. It has also raised its 12-month target price to $3.34, up from $3.31 previously.
The upgraded target price represents a potential 3.4% upside for investors from the time of writing.
"Valuation: Target price adjusted to $3.34, up $0.03 reflective of the marginally lower discount rate. Network value remains marginally ahead of RAB (1.03x)," it said in the note.
"Neutral. Network realisation would provide a one-off positive, but at a cost of future flexibility. Nor does it address the core problem of lack of consistent above rail growth. Delivery on coal replacement contacts, bulk/ freight having a track record are stronger drivers to performance."
The broker downgraded the stock to neutral earlier this month, citing concerns around contract movements, particularly the renewal of Whitehaven's rail haulage contracts.
What else did the broker have to say?
Macquarie noted that Aurizon's FY25 EBITDA of $1.576 million was as per guidance. The company had already flagged FY25 as a tough year, and the broker said that "whilst meeting expectations at $1,576m, a $50m insurance/STI provision flattered the quality".
Network and coal suffered with limited recovery given weather and outages. Bulk was a positive surprise in 2H, albeit offset by no improvement in containerised freight. Free cash flow was $90m ahead of expectation as maintenance capex was lower than 1H guidance.
The company's FY26 guidance of $1.68 million-$1.75 million is also consistent with consensus.
"FY26 guidance of $1.68-1.75m was consistent with expectation, albeit benefiting from a revised Network a/c policy switching to regulated revenue over actual. Cashflow is unaffected," the broker said.
"The FY27 and FY28 have some challenges with loss of Whitehaven, repricing of KML contract and ending of the GAPE premium. AZJ is confident of a positive UT6, a win-back of lost coal volumes, BHP contract growing and containerised freight progressing."
