On Friday, UBS downgraded shares of Fortum OYJ (FORTUM:FH) (OTC: FOJCY) from Neutral to Sell, maintaining a price target of EUR 12.10. The decision follows a notable rise in the company's share price over the past two weeks, outpacing the gains seen in the broader sector and its peers.
Despite the upward movement in H224 and 2025 power price forward curves, UBS noted that long-term forward Nordic power prices have remained largely unchanged, prompting the downgrade.
According to the firm, Fortum's shares have surged 18% compared to an 8% increase in the sector and a 1-6% rise among its peers. The near-term Nordpool forward curve for Q3 and Q4 2024 has seen an uptick of EUR 3-6 per MWh.
Nevertheless, the impact on Fortum's earnings is expected to be limited due to the company's current hedging strategy, with 70% coverage for the remaining year. For 2025, the forward curve went up by EUR 2 per MWh, while the long-term forward curve experienced a slight decline of EUR 0.5 per MWh.
UBS has adjusted its financial model to reflect the latest power price forward curves, resulting in an increase of 2-5% in its EBITDA estimates for the years 2024 to 2026. However, the EBITDA estimate for 2027 remains largely the same.
This revision translates to a 3-7% rise in the estimated earnings per share (EPS) for 2024-2026, contrasted with a 1% reduction in the projected 2027 EPS. The firm's unchanged price target of EUR 12.10 reflects these updated estimates and the recent performance of Fortum's shares.
InvestingPro Insights
Fortum OYJ (OTC: FOJCY) has displayed a significant return over the last week, with the price total return reaching 8.12%, and an even more impressive 22.13% over the last month. This performance has led to the company trading near its 52-week high. With a market capitalization of $14.2 billion and a low earnings multiple of 7.69, Fortum's financials suggest a strong position in the market. Despite the recent downgrade by UBS, the company's P/E ratio remains attractive, especially when considering its history of maintaining dividend payments for 26 consecutive years and a current dividend yield of 4.64%.
InvestingPro Tips indicate that while analysts have revised their earnings downwards for the upcoming period and anticipate a sales decline in the current year, the company still pays a significant dividend to shareholders. Additionally, Fortum's liquid assets exceed its short-term obligations, and it operates with a moderate level of debt, which may appeal to conservative investors. For those interested in a deeper analysis, InvestingPro offers additional insights, including 15 more InvestingPro Tips that could guide investment decisions. For those considering a subscription, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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