On Friday, JPMorgan (NYSE:JPM) upgraded Semen Indonesia Persero Tbk PT (SMGR:IJ) (OTC: PSGTY) stock, shifting the rating from Neutral to Overweight.
The investment firm also increased the price target to IDR4,530.00, up from the previous target of IDR3,750.00. This adjustment reflects a 26% potential upside from the current level, based on a 6.5 times 2025 estimated EV/EBITDA ratio.
The analyst anticipates that Semen Indonesia will experience earnings growth in 2025, driven by reduced cost pressures and an improvement in demand. The first quarter of 2025 is seen as a period that could provide a near-term catalyst for the company due to a relatively easy base for year-over-year volume growth.
Despite a cut in earnings estimates for 2024 and 2025 by 38-39%, which positions JPMorgan's projections 25-30% below consensus estimates, the market had already anticipated this revision. Semen Indonesia's stock only saw a modest 3% correction relative to the Jakarta Composite Index (JCI) following a greater than 50% miss in third-quarter earnings reported two weeks prior.
JPMorgan's outlook suggests that the market is focusing on the trajectory of earnings as a key factor for a potential re-rating of the stock. According to the analyst, the year 2024 is expected to represent the low point in the earnings cycle for Semen Indonesia, indicating a possible recovery thereafter.
InvestingPro Insights
Adding to JPMorgan's optimistic outlook on Semen Indonesia Persero Tbk PT (OTC: PSGTY), recent data from InvestingPro provides additional context for investors. The company's stock is currently trading at a low Price / Book multiple of 0.57, suggesting it may be undervalued relative to its assets. This aligns with JPMorgan's view of potential upside and the anticipation of earnings growth in 2025.
InvestingPro Tips highlight that PSGTY is trading near its 52-week low and has a high shareholder yield, which could be attractive for value investors looking for entry points. The company's valuation also implies a strong free cash flow yield, potentially indicating financial flexibility as it navigates through the expected earnings trough in 2024.
It's worth noting that PSGTY has maintained dividend payments for 33 consecutive years, demonstrating a commitment to shareholder returns despite recent challenges. This track record may provide some reassurance to investors during the current period of earnings pressure.
For those interested in a deeper analysis, InvestingPro offers 11 additional tips for PSGTY, providing a more comprehensive view of the company's financial health and market position.
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