Fresh commentary out of broker Ord Minnett suggests ASX industrials stock Service Stream Ltd (ASX: SSM) could be set to rise.
Service Stream provides telecommunications and network services.
Also, it focuses on design, construction, operation, and maintenance services for infrastructure assets across the telecommunications, utilities, transport and defence sectors in Australia.
On Thursday, Ord Minnett upgraded its price target on the company. This was largely thanks to new contracts signed with the Australia Department of Defence which are set to run for the next 6 years.
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What are the new contracts?
Service Stream has been awarded two Base Services Contracts with the Australia Department of Defence.
The company has been appointed the provider of Property and Asset Services for South Australia and the Northern Territory. This encompasses 113 Defence sites and training facilities, including 8 major bases.
The Contract will operate for an initial 6-year term, with two extension options of between 1-3 years. Additionally, the combined value of the works for both regions is approximately $1.6 billion over the initial term.
Ord Minnett said the contract further diversifies the company's earnings mix away from the traditional skew to telecommunications.
Once the contract is fully deployed, and overlaying margin and capital expenditure assumptions, our FY27 EBITDA forecasts are upgraded by 8% and EPS forecasts upgraded by 11%.
Supported by a strong balance sheet, and the capacity to fund new contract mobilisation through internal cash flows, the latest contract highlights the latent operating leverage in Service Stream from organic growth.
Price target upgrade for Service Stream
It has already been a strong year for this ASX industrials stock which is up more than 47% YTD.
As a result of the news of the Australian Defence contract, Ord Minnett has upgraded its price target to $2.57 per share. It has lifted from $2.35 and raised its recommendation to Buy from Accumulate.
Based on Friday's closing price of $2.33, this indicates an upside of 10.3%.
Importantly, Ord Minnett isn't the only broker looking favourably on the news.
After the announcement of the deal on September 11, Macquarie updated their price target for the company from $2.42 to $2.70.
This indicates almost 16% upside from its current price.
