Emeco Holdings (ASX:EHL) is poised for further expansion, with the company set to benefit from strong performance in the current fiscal year, including net debt reduction and improved return on capital, Euroz Hartleys said in a Thursday note.

The company's ability to meet its fiscal year targets could also drive near-term share price appreciation and close the significant valuation gap, the note said.

There is a potential upside from EHL's goal to return to a 20% return on capital over the medium term, Euroz Hartleys added.

The financial services firm expects attention on Emeco's upcoming fiscal first-half results to focus on free cash generation and broader outlook commentary.

The firm forecasts Emeco Holdings' fiscal H1 earnings before interest, taxes, depreciation, and amortization of AU$144 million, and free cash flow of around AU$40 million, and full-year free cash flow between AU$90 million to AU$100 million.

This aligns with the company's previously announced guidance, targeting an 18% return on capital for the fiscal second half, the firm said.

Euroz Hartleys expects that a strong cash flow in fiscal H1 will act as a significant catalyst, and meeting its targets should drive share price appreciation.

Euroz Hartleys maintained the company's buy recommendation and its price target of AU$1.23.

Shares of the maintenance and component rebuild services provider rose 3% in recent Friday trade.