On Tuesday, Jefferies analyst Lucas Ferhani raised the stock rating of Vestas Wind Systems A/S (ETR:VWSB) (VWS:DC) (OTC: VWDRY) from Hold to Buy, despite lowering the price target to DKK135.00 from the previous DKK160.00. The $13.36 billion market cap company, which according to InvestingPro is trading near its 52-week low, has seen three analysts revise their earnings upward for the upcoming period. Ferhani's decision to upgrade is based on several factors that may benefit the company in the near future.
Ferhani notes that the current sentiment for Vestas is at a low point, and the company's valuation sits at the lower end of its historical range, which presents an opportunity for investors. While trading at a high P/E ratio of 252, InvestingPro analysis suggests the stock is currently undervalued. The analyst predicts that the year 2025 could see a positive shift due to potential political and regulatory changes, which would be a rebound from a "worst case" scenario expected in 2024.
Additionally, there is an expectation that confidence in Vestas' Services earnings will recover following significant downgrades last year. With annual revenue of $17.73 billion and a modest revenue growth of 3.45%, Ferhani also anticipates an improvement in Power Solutions earnings, driven by growth in offshore developments and the United States market. Discover 12 more exclusive insights about Vestas on InvestingPro, including detailed financial health scores and comprehensive valuation metrics.
In light of these prospects, Jefferies has revised its earnings before interest and taxes (EBIT) estimates for 2024 to 2026, expecting a mid-teens decrease. The sum-of-the-parts (SOTP) valuation has been moved to 2026 estimates, leading to the establishment of the new price target of DKK135.00. This target implies a total shareholder return (TSR) of 42%, indicating a potentially attractive return for investors who choose to buy into Vestas shares following this upgrade.
In other recent news, Vestas Wind Systems A/S reported solid third-quarter results, with a notable 19% year-on-year increase in revenue to €5.2 billion, primarily driven by higher prices and delivery volumes. The company also reported an improvement in EBIT margins, which rose to 4.5%, and a record turbine backlog. Despite operational challenges such as onboarding new staff and supply chain disruptions, Vestas has been expanding its manufacturing capabilities in the U.S. and Europe.
However, Berenberg has downgraded Vestas stock from a "Buy" to a "Hold" rating due to concerns about the company's margin recovery prospects and potential challenges following the recent U.S. presidential election. Deutsche Bank (ETR:DBKGn) also adjusted its outlook on Vestas, lowering the price target, reflecting concerns over the political climate in the United States.
Vestas' net debt to EBITDA ratio improved significantly to 0.9 times, and the company's Moody's (NYSE:MCO) investment grade rating remained stable at Baa2. The company maintained its full-year revenue guidance at €16.5 billion to €17.5 billion, with an EBIT margin forecast of 4% to 5%. However, the service business is expected to generate around €450 million, revised down from €500 million. These are the recent developments in the company's financial performance.
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