On Wednesday, JPMorgan increased its price target on Saipem (BIT:SPMI) (SPM:IM) (OTC: SAPMF) shares to EUR3.40, up from the previous EUR3.20, while keeping an Overweight rating on the stock.
The firm highlighted that Saipem has consistently outperformed guidance and secured significant orders over the past two years, with an average book-to-bill ratio of approximately 1.5 times in the last 24 months. This strong performance has led to raised medium-term expectations and a robust revenue outlook extending beyond 2027.
The positive outlook is supported by the high demand and limited capacity in the offshore market, which also presents high barriers to entry. These factors are contributing to both an increase in order intake and an upward trend in margins due to both underlying and mix effects. JPMorgan anticipates that Saipem's focus on earnings quality and contract discipline will persist.
The firm also predicts a roughly 20% compound annual growth rate (CAGR) in EBITDA for Saipem from the fiscal year 2023 to 2027, which is expected to result in strong free cash flow (FCF) generation. With a projected year-end 2024 leverage of just 0.05 times, the balance sheet is considered reset, giving management the capacity to return significant cash to shareholders. It is estimated that 30-40% of FCF, after leases, will be distributed in the years 2024 to 2027.
Saipem is JPMorgan's top pick in the Oilfield Services (OFS) sector. Despite the stock's impressive performance this year, rising approximately 75% year-to-date, it is still considered to be trading at an attractive valuation of just 2.7 times the fiscal year 2025's estimated enterprise value to EBITDA (EV/EBITDA). The firm sees any positive developments or resolution on Saipem's Courseulles-sur-Mer and Thai Oil joint venture projects as potential buying opportunities for investors.
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