On Monday, Citi upgraded Stora Enso (OTC:SEOAY) OYJ stock, listed on the Helsinki stock exchange as STERV:FH and over-the-counter as SEOAY, changing the rating from Neutral to Buy. The firm also increased the price target for the company's shares to EUR15.00, up from the previous EUR13.20.
The upgrade reflects a shift in the narrative towards the company's profitability, cash flow, and shareholder returns, according to Citi. This change is seen as a positive development for investors, aligning with improving market prices and the conclusion of destocking phases. Citi's analysis indicates that Stora Enso's strategic restructuring and the deferral of major projects are likely to bolster cash flow, countering previous bearish concerns.
Citi notes that the company's capital expenditure is nearing depreciation levels, suggesting a more balanced financial approach. The firm's projections show a more optimistic outlook for Stora Enso's earnings per share (EPS) for the years 2024 and 2025, estimating figures that are 50% higher than the market consensus.
Stora Enso's competitive position is also highlighted in the upgrade. The company is noted for being more wood self-sufficient compared to Billerud, with a self-sufficiency level of 30% against Billerud's 0%.
It also boasts a more diversified portfolio away from pulp compared to UPM, with only 35% of its EBIT dependent on pulp against UPM's 50%. While pulp price momentum is reportedly slowing, Citi anticipates that positive developments in the board segment could act as catalysts for Stora Enso's share performance.
In other recent news, Stora Enso OYJ has been upgraded from Equalweight to Overweight by Morgan Stanley (NYSE:MS), which also raised the price target for the company's stock from EUR12.50 to EUR15.30.
This upgrade is based on the firm's forecast of Stora Enso's earnings before interest and taxes (EBIT) reaching a significant EUR1.3 billion by 2027, up from the estimated EUR0.7 billion in 2024.
Morgan Stanley's analysis suggests this growth will be driven by a cyclical recovery in commodity prices benefiting the packaging division, a EUR0.2 billion contribution from the conversion of a machine at the Oulu facility, and a EUR0.15 billion cyclical earnings recovery in the Wood Products division.
The firm's projections place it 17% above the consensus for the industry in 2027. These recent developments indicate a unique position for Stora Enso, as its anticipated earnings growth is not expected to be matched by any other company in the sector.
InvestingPro Insights
Following Citi's upgrade of Stora Enso, a deeper look into the company's financials through InvestingPro data reveals additional insights that may interest investors. Stora Enso has a market capitalization of $10.98 billion USD and, despite a negative P/E ratio of -22.14, indicating unprofitability in the last twelve months, analysts are predicting a return to profitability this year. This aligns with one of the key InvestingPro Tips, which notes that net income is expected to grow. Moreover, the company's stock is known for its low price volatility, providing a potentially stable investment option.
Another InvestingPro Tip highlights Stora Enso's impressive track record of maintaining dividend payments for 28 consecutive years, which is particularly notable given the current dividend yield of 0.59%. This track record, coupled with the company's long-term financial commitment to shareholders, may offer additional confidence for income-focused investors. For those looking to explore further, InvestingPro features a number of additional tips that can provide deeper insights into Stora Enso's financial health and future prospects.
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