J.P. Morgan Initiates Coverage on Gates Industrial Corporation with Overweight Rating and $35 Price Target.

Gates Industrial Corporation (GTES) shares jumped 3.1% in the pre-market session after J.P. Morgan initiated coverage with an "Overweight" rating and a $35 price target, citing the company's transformation from a traditional supplier to a growth-focused company. The firm highlighted Gates Industrial's impressive margins and strong cash flow, reinforcing the positive sentiment surrounding the stock. The shares cooled down to $25.81, up 0.9% from the previous close.

Gates Industrial Corporation (GTES) shares surged 3.1% in the pre-market session on July 2, 2025, following J.P. Morgan's initiation of coverage with an "Overweight" rating and a $35 price target. The investment bank highlighted the company's transformation from a traditional supplier to a growth-focused entity, driven by strong margins, robust cash flow, and strategic positioning in emerging markets.

Tomohiko Sano, an analyst at J.P. Morgan, noted that Gates Industrial is well-placed to turn its industrial base into a stronger, innovation-driven business. The analyst cited the company's significant market share in power transmission, with around 70% of sales coming from the aftermarket, and its consistent delivery of gross margins above 40% over the past five quarters. Sano also pointed to Gates Industrial's exposure to long-term trends in data centers and mobility as key growth drivers.

According to Sano, Gates Industrial's high-performance thermal management systems for data centers could scale to $100 million by 2026, while its lightweight battery drives for personal mobility and powersports could triple from $100 million today to over $300 million by 2028. By then, data centers and mobility could contribute more than 10% of total revenue, up from 3% in 2024.

The analyst also commended Gates Industrial's operational efficiency, noting that the company has steadily improved its supply chain, pricing, and manufacturing efficiency. This has enabled it to absorb tariff impacts while expanding margins. Free cash flow conversion has exceeded 90%, and net leverage is expected to fall below 1.5 times by 2026.

J.P. Morgan applied a 12 times EV/EBITDA multiple to its 2026 estimates, a 20% premium to Gates' three-year average, arguing that the company deserves a re-rating as margins and balance sheet strength improve. The firm also noted that the stock trades at a discount to peers and has room to re-rate higher, following Blackstone's 2024 exit.

Gates Industrial shares cooled down to $25.81, up 0.9% from the previous close, reflecting investor sentiment following the analyst's positive rating and price target.

References:
[1] https://www.investing.com/news/stock-market-news/jp-morgan-starts-gates-industrial-at-overweight-sees-39-upside-on-growth-shift-4209368
[2] https://www.tipranks.com/news/ratings/gates-industrials-strategic-shift-and-growth-potential-analyst-recommends-with-35-price-target-by-2026-ratings
[3] https://seekingalpha.com/news/4488960-gates-industrial-hits-all-time-high-as-j-p-morgan-starts-at-overweight