Sell-off of transportation and defense services firm Cubic 'overdone,' JPMorgan upgrades to overweight

Published Thu, Aug 10 20174:29 PM EDT

JPMorgan research upgraded shares of Cubic, a transportation and defense services company, to overweight from neutral, saying a recent sell-off in the stock went too far. Cubic designs the technology subway riders around the world use to pay their fares and it also creates training technology for militaries and other defense agencies. The company reported a third-quarter loss of $22 million last week, sending its shares tumbling more than 10 percent. Cubic shares remain over 8 percent lower since the earnings report. "While the print was disappointing owing to timing of orders and elevated investment activity, we believe the magnitude of the sell-off is overdone," wrote JPMorgan analyst Mark Strouse. But Strouse now sees greater opportunity in the stock, encouraging investors to give Cubic a second chance based on valuation and upcoming catalysts. In addition to upgrading his rating to overweight, the analyst raised his December 2018 price target to $53, which would be a 32 percent gain from Wednesday's closing price. "With the stock now trading at a slight discount to historical multiples, and catalysts on the horizon including new Transportation contracts, we believe risk-reward is now favorable," continued Strouse. Cubic is preparing for the New York City MTA contract award this fall, which includes expanded work in the Metro North and Long Island Railroad commuter rail systems, increasing the long-term value of the contract. Strouse's research also noted Cubic's role in providing defense training and mission support services around the globe. "The Defense Systems segment provides air and ground combat training systems used by the US military and its allies and is a key supplier of secure communications solutions," added the analyst. "Cubic is the prime contractor at more than 35 training and support facilities. The business supports more than 200,000 training exercises per year and is engaged in 13 NATO modernization programs." With investors eyeing tensions between the United States and North Korea, Cubic may stand to gain from accelerated combat training and systems demand.

A logo sign outside of a facility occupied by the Cubic Corporation in Alexandria, Virginia.

Sipa | AP Images

JPMorgan research upgraded shares of Cubic, a transportation and defense services company, to overweight from neutral, saying a recent sell-off in the stock went too far.

Cubic designs the technology subway riders around the world use to pay their fares and it also creates training technology for militaries and other defense agencies. The company reported a third-quarter loss of $22 million last week, sending its shares tumbling more than 10 percent. Cubic shares remain over 8 percent lower since the earnings report.

"While the print was disappointing owing to timing of orders and elevated investment activity, we believe the magnitude of the sell-off is overdone," wrote JPMorgan analyst Mark Strouse.

But Strouse now sees greater opportunity in the stock, encouraging investors to give Cubic a second chance based on valuation and upcoming catalysts.