On Tuesday, Schneider Electric (EPA:SCHN) SE (EPA:SU) (OTC:SBGSY) stock received an upgrade from a major financial services firm, Jefferies. The firm raised its rating on the from Hold to Buy and significantly increased the price target to EUR 260 from the previous EUR 175.
The upgrade comes after the firm conducted in-depth bottom-up research, which included expert channel checks and collaboration with other research teams within Jefferies, such as those focusing on US REITs and EU Utilities.
The research led to increased confidence in Schneider Electric's growth and margin outlook. Analysts at Jefferies now believe that the company's growth prospects are more sustainable than previously thought.
They forecast the company's adjusted earnings per share (EPS) for the fiscal year 2025 to be 6% above the consensus. They attribute this optimism to strong volume and pricing in Schneider's Energy Management business for both fiscal years 2024 and 2025.
Jefferies' revenue model for Schneider Electric suggests that the company will experience double-digit growth in its data centre segment. This is despite some market-wide bottlenecks that have been identified.
Additionally, the firm anticipates that investments in the grid will bolster Schneider's already strong position in the medium voltage space, leading to high single-digit growth over the medium term.
The valuation approach used by Jefferies is based on comparisons with segment peers. This approach takes into account some of the highest-quality names in the industry, reflecting Schneider Electric's own business characteristics. This comprehensive analysis has led to the firm's renewed and more favorable outlook on Schneider Electric's stock.
In other recent news, Schneider Electric SE continues to be viewed favorably by UBS, which maintains a Buy rating for the company. The firm's analysts perceive Schneider as one of the most promising growth-driven stories in the sector, bolstered by gradual margin improvement. Schneider's fiscal year 2024 margin targets of 18.0-18.2% were deemed conservative by the analyst.
The company's current stock valuation stands at 18.1 times its estimated 2024 enterprise value to earnings before interest, taxes, and amortization (EV/EBITA) and 24.7 times its price to earnings (P/E) ratio. Despite a premium compared to its European peers, Schneider's superior growth profile and relative de-rating compared to major U.S. peer, Eaton (NYSE:ETN), are seen as advantages.
These recent developments underscore UBS's belief in Schneider Electric's strategic positioning and its capability to enhance shareholder value through consistent performance.
InvestingPro Insights
Following the recent upgrade by Jefferies, Schneider Electric SE's (OTC:SBGSY) financial health and market performance further underline the company's investment potential. With a market capitalization of $2.41 billion, Schneider Electric is a significant player in the electrical equipment industry. An important metric to consider is the company's P/E ratio, which stands at a high 119.94, suggesting a premium valuation by the market. However, when adjusted for the last twelve months as of Q4 2023, the P/E ratio appears more grounded at 30.64.
From a growth perspective, Schneider Electric has demonstrated a solid revenue increase of 5.05% in the last twelve months as of Q4 2023. This aligns with Jefferies' confidence in the company's sustainable growth prospects. Additionally, Schneider Electric has shown a commitment to shareholder returns, having raised its dividend for 10 consecutive years and maintained dividend payments for 29 years. Investors should also note the company's moderate level of debt, which supports financial stability.
For those seeking more in-depth analysis, there are further InvestingPro Tips available, which highlight Schneider Electric's recent large price uptick over the last six months and a strong return over the last five years. For additional insights and to unlock the full range of exclusive tips, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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