On Thursday, Citi updated its stance on Assa Abloy (OTC:ASAZY) shares, increasing the price target to SEK275 from SEK265, while reiterating a Sell rating on the company's stock. The firm highlighted the strong performance of Assa Abloy's Entrance Systems division in the first quarter of 2024 as a key positive factor.
Despite this, Citi remained cautious, pointing out that there has been no significant shift in Assa Abloy's outlook on its residential segment. The company still anticipates a possible return to positive organic growth in the residential segment by the fourth quarter of 2024.
Citi's analysis suggests that investor optimism for the U.S. residential market may be too high, considering the persistent high-interest rate environment. This could affect Assa Abloy's performance, as the residential market is a significant part of the company's business.
Additionally, while the institutional sector continues to bolster the non-residential segment, Citi foresees potential risks of a slowdown in the non-residential market. This is due to weak Architectural Billings Index (ABI) trends that may indicate a dwindling industry backlog.
The financial institution has made slight upward adjustments to its forecasts for Assa Abloy, resulting in an estimated 5% to 6% increase in earnings per share (EPS). These adjustments, along with favorable foreign exchange rates, have contributed to the decision to raise the price target.
However, Citi maintains a cautious perspective on the market outlook for Assa Abloy, suggesting that the consensus may be overly optimistic. The firm's ongoing Sell rating indicates that it views Assa Abloy's shares as potentially underperforming relative to the market.
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