Balfour Beatty Shares (LON:BBY) Upgraded, Bulls Have Sights on New High

Balfour Beatty shares (LON:BBY) are experiencing a surge in confidence, with a 0.68% gain today bringing the YTD rally to 27.94%, and within sights of highs. An upgrade today, from a previously bearish analyst will not have done sentiment any harm, with a series of contract wins and improved financial performance also supporting bullish momentum

BBY shares received an “Equal Weight” rating from Morgan Stanley analyst Nicolas Mora, a step up from the previous “Underweight” rating. The price target was also raised to 640p from 568p, indicating a new high could be in store, with the current high of 594.50p, a few pence away. This adjustment reflects an improved revenue outlook, driven by the company's strong order intake during the first half of 2025.

Balfour Beatty has recently secured several major contracts that are bolstering its revenue prospects. In April, the company was awarded an $889 million contract by the Texas Department of Transportation to reconstruct a 2.3-mile section of Interstate 30 in east Dallas County. Further solidifying its order book, Balfour Beatty secured an £833 million ($1.14 billion) contract in June from Technip Energies to contribute to the construction of the Net Zero Teesside power project in the UK.

The company's financial health has also demonstrated positive trends. Full-year results revealed a 7% increase in underlying profit from operations (PFO) from earnings-based businesses, reaching £252 million. The UK construction division achieved an operating margin of 2.7%, an increase from 2.3% in 2023, indicating progress toward the company's long-term margin target of 3%. The positive momentum continued into the first half of 2025, with the UK construction division surpassing the 3% margin target. Revenue increased to £1.56 billion, with PFO reaching £56 million—a 65% year-on-year increase. A significant 82% of orders are now on target cost or cost-plus terms, reducing exposure to fixed-price risks.

Despite these positive developments, Balfour Beatty remains cautious about potential headwinds. The company is closely monitoring the potential impacts of U.S. tariffs, particularly on materials like steel, which could affect project costs and profitability. Additionally, an £83 million charge related to building safety remediation has impacted overall profitability, highlighting the importance of addressing legacy issues.

Analysts suggest that the combination of new contract wins, improved financial performance, and the leadership transition has created a favorable environment for Balfour Beatty. The company's focus on mitigating fixed-price risks and improving operational performance in its UK construction division is viewed as a positive sign. However, the potential impact of tariffs and legacy building safety issues remain areas of concern.