On Monday, Goldman Sachs (NYSE:GS) revised its stance on Orsted A/S (CSE:ORSTED:DC) (OTC: DNNGY (OTC:DNNGY)), downgrading the stock from Buy to Neutral and adjusting the price target to DKK445.00 from the previous DKK520.00. The downgrade was attributed to several factors that could potentially impact the company's financial performance and operations, particularly in the United States.
The investment firm pointed out that the recent shift in control within the U.S. could affect the economics of offshore wind projects. Possible changes to tax credits, the introduction of tariffs on imported equipment, and the risk of execution delays or additional costs were cited as concerns that could lead to further impairments for Orsted.
Furthermore, Goldman Sachs highlighted the potential challenges Orsted could face with its asset rotation plan due to any incremental cost overruns. Such difficulties could raise balance sheet concerns for the Danish energy company, which specializes in wind power and other renewable energy technologies.
The firm also noted that despite the recent strength in energy prices, there are medium-term risks that could negatively affect Orsted's earnings per share (EPS). These risks include the possibility of geopolitical normalization and an oversupply of liquefied natural gas (LNG), which could lead to downward revisions in EPS forecasts for the company's merchant volumes.
In summary, Goldman Sachs' reduced price target of DKK 445 reflects a new valuation for Orsted's existing assets, which is now set at DKK 358 per share. This valuation takes into account the identified risk factors that could influence Orsted's future earnings and market position.
In other recent news, Ørsted, the Danish renewable energy company, reported a 22% year-over-year increase in EBITDA for the first nine months of 2024, reaching DKK 23.6 billion. Despite challenges such as impairments in U.S. offshore projects and a reduction in CapEx guidance for 2024, the company has shown resilience and optimism for future growth. Ørsted has also commissioned 550 megawatts of renewable capacity, bringing its total portfolio to 18.2 gigawatts.
In a strategic move, Ørsted divested a 12.45% stake in four UK offshore assets to Brookfield for DKK 15.7 billion. The company's net profit for the third quarter was DKK 5.2 billion, with an adjusted net profit of DKK 400 million after accounting for exchange rate adjustments and impairments. Ørsted's net debt stood at nearly DKK 63 billion at the end of Q3.
InvestingPro Insights
To complement Goldman Sachs' analysis of Orsted A/S (OTC: DNNGY), recent data from InvestingPro offers additional context. Despite the downgrade, InvestingPro Tips highlight that Orsted has raised its dividend for 7 consecutive years, suggesting a history of consistent shareholder returns. This track record could provide some stability amidst the challenges outlined by Goldman Sachs.
However, aligning with Goldman's concerns about potential financial pressures, an InvestingPro Tip indicates that Orsted is "quickly burning through cash." This observation supports the investment firm's worries about balance sheet risks, especially if the company faces difficulties with its asset rotation plan or experiences cost overruns.
From a valuation perspective, Orsted's P/E ratio stands at 32.57, which InvestingPro characterizes as "trading at a high earnings multiple." This high multiple could be vulnerable to the downward EPS revisions that Goldman Sachs anticipates due to potential geopolitical normalization and LNG oversupply.
It's worth noting that InvestingPro offers 11 additional tips for Orsted, which could provide investors with a more comprehensive view of the company's prospects in light of the recent downgrade.
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