On Thursday, Citi adjusted its outlook on Atlas (NYSE:ATCO) Copco AB, a prominent manufacturing company. The firm's analyst modified the price target for Atlas Copco (ATCOA:SS) (OTC: ATLKY) to SEK212.00 from the previous SEK222.00. Despite the reduction, the analyst maintained a Buy rating on the company's shares.
The revision in the price target was attributed to a decrease in the forecast for semiconductor volumes, particularly affecting the Chinese market. The analyst noted that volumes in China are projected to decline by more than 30% in 2025 compared to earlier expectations of flat growth.
This outlook aligns with the recent guidance cut at ASML (AS:ASML), a key player in the semiconductor industry, which has experienced order delays in memory and logic.
The analyst also highlighted that the earnings before interest and taxes (EBIT) forecasts for Atlas Copco's Vacuum Technique (VT) business for fiscal years 2025 and 2026 are now expected to be slightly below market consensus. Despite these changes, the analyst does not anticipate a significant discrepancy between the actual VT orders reported next week and the current market expectations.
The market has already seen some adjustments, with Atlas Copco's stock price decreasing by 5% in response to the earnings forecast cuts following ASML's warning. This decline suggests that the stock price is now more aligned with the revised earnings expectations, implying that the risk associated with the company's upcoming financial results may have been mitigated.
In other recent news, Atlas Copco Group reported mixed results in its Q2 2024 earnings call. The company saw significant order growth in the gas and process compressor segment, but a flat performance in industrial compressors and vacuum equipment. Orders received totaled SEK 43.6 billion, marking a 1% organic decline, while revenues reached SEK 44.8 billion, a 2% organic decrease.
Despite these figures, the service business displayed robust performance across all regions and divisions.
The company's balance sheet showed increased investment in rental equipment and property, with a solid cash flow surplus of SEK 11 billion. Positive growth was reported in the US and Europe, contrasting with most business areas in Asia, which experienced negative growth. The near-term outlook suggests customer activity is expected to stay at current levels, with negative currency effects anticipated next quarter.
Atlas Copco's profitability remained stable at 21.1%. However, bearish highlights include Asia's negative growth and a drop in profitability in the Vacuum Technique and Industrial Technique divisions. On the bullish side, the service business performed well across all regions and divisions, and the Compressor Technique division experienced solid order growth.
InvestingPro Insights
Atlas Copco's financial metrics and market position offer additional context to Citi's analysis. According to InvestingPro data, the company boasts a market capitalization of $76.41 billion and a P/E ratio of 27.26, indicating investor confidence in its future earnings potential. The company's revenue growth of 9.77% over the last twelve months demonstrates its ability to expand despite challenging market conditions.
InvestingPro Tips highlight Atlas Copco's strengths and potential risks. The company is recognized as a prominent player in the Machinery industry, which aligns with its significant market presence. Additionally, Atlas Copco has maintained dividend payments for 45 consecutive years, showcasing its commitment to shareholder returns. This is particularly relevant given the recent price target adjustment, as it suggests the company's financial stability even in the face of market fluctuations.
However, investors should note that Atlas Copco is trading at a high P/E ratio relative to its near-term earnings growth, which could be a point of concern given the revised semiconductor volume forecasts mentioned in the article. This valuation metric, combined with the analyst's lowered price target, suggests that investors may need to carefully consider the company's growth prospects in light of the semiconductor industry's challenges.
For readers interested in a more comprehensive analysis, InvestingPro offers 10 additional tips that could provide further insights into Atlas Copco's financial health and market position.
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