On Friday, Morgan Stanley (NYSE:MS) adjusted its stance on shares of Grupo Aeroportuario del Centro (NASDAQ:OMAB), upgrading the stock from Equalweight to Overweight, despite lowering the price target to $77 from $82. The revision reflects a recognition of the stock's potential following a notable decline in its year-to-date performance.
OMAB's shares have fallen approximately 23% in USD terms, lagging behind its industry peers Grupo Aeroportuario del Pacífico (GAP) by around 26 percentage points and ASUR by approximately 17 percentage points.
The firm sees an attractive entry point for investors, noting that OMAB is trading at a roughly 20% discount compared to its Mexican counterparts. This valuation is 0.9 standard deviations below its five-year average. The stock's current position offers a discount on both price-to-earnings (P/E) and enterprise value-to-EBITDA (EV/EBITDA) metrics when compared to its historical performance.
Morgan Stanley's proprietary traffic model anticipates material upside to consensus traffic estimates for the first quarter of 2025. The new price target suggests an approximate 20% upside, presenting what the firm considers an attractive risk-reward ratio with a bull-to-bear skew of 4.8:1. The firm's confidence is partly due to the defensive nature of OMA's business model, which typically maintains profit margins between 29-32% with low volatility.
The recent underperformance of OMAB is attributed to its perceived role as the near-shoring play among the three Mexican airport operators, with its main asset, Monterrey airport, situated in a key industrial hub near the U.S. border. However, the near-shoring momentum has stalled, partly due to increased political uncertainty following the 2024 elections.
Moreover, OMA has a higher exposure to the Mexican peso and domestic travel, as all its assets are located in Mexico, unlike GAP and ASUR, which operate airports outside the country.
Despite heightened political and macroeconomic risks, and the highly regulated nature of airport concessions, Morgan Stanley sees limited risk for Mexican airport operators. The firm believes that significant regulatory changes are unlikely under the new presidential administration, as the new airport concession rules were negotiated with the current government.
The valuation is deemed attractive, with Morgan Stanley not factoring any nearshoring benefits into its traffic assumptions, yet the price target is consistent with the company's five-year average P/E multiple based on 2025 earnings estimates.
InvestingPro Insights
As investors consider the analysis provided by Morgan Stanley on Grupo Aeroportuario del Centro (NASDAQ:OMAB), real-time data and insights from InvestingPro further enrich the investment perspective. OMAB's gross profit margin stands impressively at 67.95%, highlighting the company's ability to maintain profitability. This is particularly relevant as the firm's defensive business model is commended for its consistent profit margins.
With a P/E ratio of 12.29 and a PEG ratio of 1.27, OMAB is trading at a low earnings multiple which could signal an undervaluation, especially when compared to its historical performance. This aligns with Morgan Stanley's view of the stock trading at a discount. The dividend yield of 10.88% also stands out, providing a significant return to shareholders, which is an important consideration for income-focused investors.
For those looking to delve deeper into OMAB's financial health and future prospects, InvestingPro offers additional tips. There are 10 more InvestingPro Tips available for OMAB, which can be found at InvestingPro, offering comprehensive analysis and forecasts that can guide investment decisions.
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