Investing.com -- Citi Research has upgraded Weir Group (LON: WEIR ) to “buy” from “neutral,” raising its target price to £29 from £21.30, in a note dated Monday.

The move is underpinned by structural gains in margins, free cash flow, and end-market exposure, especially in mining.

The target price implies a potential 16.2% share price return, with a 1.6% dividend yield, bringing the expected total return to 17.8%.

The upgrade is supported by a re-evaluation of Weir’s valuation multiple. Citi now applies a 14.5x EV/EBITA multiple to 2026 forecasts, up from 12x, reflecting an ROCE of 18.2%, WACC of 7.6%, tax rate of 27%, and long-term growth assumption of 3.5%.

At the time of publication, Weir traded at about 13x 2026E EV/EBITA, compared to peers such as Epiroc at around 18.5x.

Weir’s EBITA margin has risen from 16% in 2022 to 18.8% in 2024, with forecasts showing a further increase to 20.6% in 2026.

Citi attributes this to £80 million in cost-saving programs, of which more than £50 million remains for 2025–26.

These include lean manufacturing, SKU optimization, and ERP integration. Adjusted EBITA in 2025 is forecast at £507 million, rising to £563 million in 2026, with corresponding margins of 19.6% and 20.6% respectively.

The Minerals division saw its margin increase from 17.7% in 2021 to 21.1% in 2024. While aftermarket mix contributed, Citi identifies internal efficiency gains as the main driver.

Aftermarket share increased from 71% to 75.1% between 2021 and 2024, contributing an estimated 120bps to margin.

Notably, margins rose in 2023 despite a drop in aftermarket share (Citi Research, 2025).

Weir’s free cash flow profile has also structurally improved. The FCF margin averaged 7.5% from 2015–22 but is now expected to stabilize in the low-teens.

Citi models £460 million and £525 million of free operating cash flow in 2025 and 2026, respectively, about 9% above consensus.

Inventory optimization, aided by the company’s ERP harmonization, is seen as the key enabler for maintaining working capital at about 20% of sales.

Inorganic growth also contributed to the upgrade. Weir’s £624 million acquisition of MicroMine, completed in April 2025, adds a software asset with around 35% EBITA margin and 20–25% revenue growth.

It is expected to add 150bps annually to ESCO division growth. Citi does not model synergies but views the acquisition as supportive of digital expansion.

Despite these improvements, Weir’s valuation remains below peers. Citi argues the company’s consistent margin and FCF performance support a re-rating.

The brokerage adds that Weir’s quality has improved significantly, yet this is not fully priced into the stock.