On Wednesday, Stifel downgraded Verbund AG stock, listed on the Vienna Stock Exchange as VER:AV and over-the-counter as OEZVY, from a "Hold" to a "Sell" status. The move was accompanied by a significant reduction in the price target, bringing it down to €55.00 from the previous €88.00.
The decision to downgrade the Austrian electricity company stems from a cautious outlook on its performance through the years 2024 to 2026. Stifel anticipates that the consensus on Verbund's financial health may face downside risks during this period.
A key concern highlighted is the potential for the company's net debt to at least double by 2026, reaching a level above twice its earnings before interest, taxes, depreciation, and amortization (EBITDA), a stark increase from the 0.4x EBITDA reported in 2023.
Stifel's analysis suggests that Verbund's strategy in New Renewables has not been yielding the expected returns. Additionally, the firm points out potential regulatory risks associated with the Austrian Power Grid (APG) and the Gas Connect Austria (GCA), which could further impact Verbund's financial standing.
The new price target of €55.00 implies an expected downside potential of 19%. This target is based on an enterprise value to EBITDA (EV/EBITDA) multiple of 7.0x and a price-to-earnings (P/E) ratio of 10.4x for the year 2024. These valuation metrics are considered by Stifel to be fair, especially in light of their revised estimates for Verbund's compound annual growth rate (CAGR) for EBITDA and earnings per share (EPS), which are projected to be -8.4% and -14.5% respectively over the period from 2024 to 2027.
InvestingPro Insights
Amidst the downgrade of Verbund AG by Stifel, InvestingPro data provides additional context for investors. The company currently has a market capitalization of $24.48 billion and a P/E ratio of 10.01, which is notably lower than the P/E ratio of 10.4x projected by Stifel for 2024. Additionally, the adjusted P/E ratio for the last twelve months as of Q4 2023 stands at 9.32, indicating a potentially undervalued stock relative to near-term earnings growth. Verbund's dividend yield is currently at 2.19%, reflecting a significant dividend growth of 140.04% over the last twelve months, which aligns with the InvestingPro Tip highlighting the company's history of raising its dividend for five consecutive years.
Investors may also find value in Verbund's strong free cash flow yield and its ability to maintain dividend payments for 25 consecutive years, as suggested by InvestingPro Tips. The company's cash flows can sufficiently cover interest payments, and it operates with a moderate level of debt. For those considering long-term investment, Verbund has been profitable over the last twelve months and has provided a high return over the last decade.
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