On Friday, Morgan Stanley (NYSE:MS) adjusted its stance on TPI Composites (NASDAQ:TPIC) stock, a manufacturer of composite wind blades, shifting its rating from Equalweight to Underweight. This downgrade comes with a significant reduction in the price target, now set at $2.00, a decrease from the previous target of $4.00.
The decision to downgrade TPI Composites' stock is driven by a couple of key factors. The firm points to heightened competition from Chinese blade manufacturers in the European market as a primary concern. Additionally, the analyst anticipates a protracted recovery period for the U.S. onshore wind sector, which is likely to impact TPI Composites' performance.
Morgan Stanley's revised price target of $2.00 per share is based on a discounted cash flow (DCF) analysis. This new valuation incorporates a 7% compound annual growth rate (CAGR) for revenue through 2035. It also assumes a 10% terminal EBITDA margin and a 16.4% discount rate. The resulting enterprise value to EBITDA (EV/EBITDA) multiple for the year 2026 stands at 7.6x, which remains relatively unchanged from the firm's prior model.
The downgrade and new price target reflect Morgan Stanley's revised expectations for TPI Composites' financial outlook. The firm's analysis suggests a more cautious view of the company's future earnings potential in light of the identified challenges in the market.
Investors and market watchers will likely monitor TPI Composites closely as the company navigates the competitive pressures and industry dynamics outlined by Morgan Stanley. The stock's performance in the coming periods will reveal the impact of these factors on the company's financial health and market position.
In other recent news, TPI Composites reported a slight increase in its third-quarter net sales for 2024, marking a 2.8% rise to $380.8 million. The company's Adjusted EBITDA also saw a significant jump, reaching $8 million from $0.2 million the previous year. These developments come as TPI Composites is undergoing a strategic transition, with 10 production lines moving to next-generation blades and plans to reopen its Iowa plant by mid-2025.
Despite a projected 40% drop in Turkish volumes for 2025 and a revised adjusted EBITDA outlook to a loss of about 2% for 2024, TPI Composites remains optimistic about its long-term growth prospects in the U.S. market and its service operations. The company also announced the addition of a new board member, Jennifer Lowery, effective from November 13, 2024.
In the face of broader European market conditions impacting its Turkish volumes, TPI Composites is exploring potential capacity expansion at a brownfield site, with more details expected in early 2024. The company also reported growth in wind blade tooling and related sales, driven by higher average sales prices and favorable currency fluctuations. These recent developments highlight TPI Composites' commitment to navigating industry challenges while leveraging strategic growth opportunities.
InvestingPro Insights
Recent data from InvestingPro paints a challenging picture for TPI Composites (NASDAQ:TPIC), aligning with Morgan Stanley's downgrade. The company's market capitalization stands at a modest $113.2 million, reflecting investor concerns. TPI's revenue for the last twelve months as of Q3 2023 was $1.3 billion, but it experienced a significant revenue decline of 15.49% during this period. This contraction supports Morgan Stanley's view on the company's growth challenges.
InvestingPro Tips highlight that TPI Composites "operates with a significant debt burden" and is "quickly burning through cash," which could exacerbate the company's financial struggles in a competitive market. Additionally, the stock "has taken a big hit over the last week," with a 15.45% decline, indicating immediate market pessimism following the downgrade.
These insights, along with 11 additional tips available on InvestingPro, provide a comprehensive view of TPI Composites' current financial situation and market performance, offering valuable context to Morgan Stanley's analysis.
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