On Friday, HSBC (LON:HSBA) updated its financial outlook for Prysmian SpA (PRY:IM) (OTC: PRYMY), an energy and telecom cable systems manufacturer, raising the price target to €53 from the previous €51 and reaffirming a Buy rating on the stock. The adjustment reflects a more optimistic view of the company's prospects, particularly within its Electrification segment.
HSBC's revised price target is based on a dual valuation approach, combining discounted cash flow-return on invested capital (DCF-ROIC) and price-to-earnings (PE) multiple analyses. The firm's analysts have increased their adjusted EBITDA forecasts for 2024 and 2025 by 5% and 3%, respectively, due to the anticipated growth in the Electrification sector.
The financial institution has laid out three pro forma scenarios regarding Prysmian's ongoing integration of the WIRE acquisition. These scenarios consider different margin levels and the pace of synergy realization. According to HSBC's base case, the DCF-ROIC valuation of Prysmian could see a 7% increase. An optimistic scenario suggests a potential 13% uplift, while a conservative estimate points to a 3% decrease.
HSBC believes that Prysmian is positioned to experience further earnings growth following the completion of the WIRE acquisition, which is expected in the second half of 2024, pending shareholder and regulatory approval. The firm cautions that potential delays in the deal or a downturn in US cable demand could pose risks to their positive outlook.
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