On Tuesday, Vestas Wind Systems A/S (VWS:DC) (OTC: VWDRY) saw its stock rating change as Redburn-Atlantic moved its stance from Buy to Neutral, significantly adjusting the price target to DKK147.00 from the previous DKK294.00.
The adjustment comes as the analyst acknowledges the unfolding of the anticipated increase in margins due to higher pricing, a core aspect of the initial Buy thesis. However, the optimism has been tempered by a combination of factors that have emerged as risks to the company's outlook.
The analyst pointed out specific challenges that contributed to the decision to downgrade the stock. These include concerns about the volume of sales, increasing competition from Chinese manufacturers, and pressures on Service margins. These issues have led to a revision of earnings forecasts for Vestas, with the new EBIT prediction for the fiscal year 2025 now standing 21% below the consensus.
The revised price target of DKK147 represents a 30% discount to the new discounted cash flow (DCF) valuation of DKK210. This discount reflects the analyst's view on the significance and expected duration of the risks identified. The downgrade to Neutral signals a shift in perspective on the stock's potential performance.
Vestas, a leading player in the wind energy sector, is facing a changing landscape as it navigates through the competitive and operational challenges highlighted by Redburn-Atlantic. The company's financial projections and stock valuation have been recalibrated to account for these industry dynamics. The new price target and rating reflect the analyst's current view on the company's prospects in light of the risks that have come to the forefront.
In other recent news, Vestas Wind Systems A/S reported mixed results in its second quarter, with a 4% decline in revenue to €3.3 billion due to adjustments in the service sector. However, this was partially offset by a 54% year-over-year increase in order intake for Power Solutions, driven by robust onshore project demand in Europe and Asia-Pacific.
Berenberg and Goldman Sachs (NYSE:GS) have both adjusted their price targets for Vestas, with Berenberg reducing it to DKK 200.00 and Goldman Sachs to DKK259.00, but both firms maintain a Buy rating on the stock.
Despite the company's service sector adjustments, both Berenberg and Goldman Sachs expressed optimism for Vestas' future due to potential improvements in the Power Solutions business and the renewable energy market's growth. In addition to these developments, Vestas' service order backlog rose to nearly €35 billion, and the development pipeline stood at 29 gigawatts.
The company also provided a revised full-year outlook, projecting a turnover of 16.5%-17.5% and an EBIT margin of 4%-5%. These recent developments underscore Vestas' ability to navigate a complex market environment while maintaining profitability and cash flow management. Despite the challenges, the company anticipates significant revenue increases in the Power Solutions business due to improved installation volumes and prices.
InvestingPro Insights
The recent downgrade of Vestas Wind Systems A/S by Redburn-Atlantic aligns with several insights from InvestingPro. The company's stock has indeed faced challenges, as evidenced by InvestingPro data showing a 19.6% decline in the past month and a 23.82% drop over the last six months. This performance supports the analyst's concerns about the company's outlook.
InvestingPro Tips highlight that Vestas "suffers from weak gross profit margins," which is reflected in the latest data showing a gross profit margin of just 8.44% for the last twelve months as of Q2 2024. This aligns with the analyst's concerns about margin pressures, particularly in the Service segment.
Despite these challenges, InvestingPro Tips also indicate that Vestas remains a "prominent player in the Electrical Equipment industry," and "net income is expected to grow this year." This suggests that while the company faces headwinds, it may still have potential for recovery.
For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips for Vestas Wind Systems A/S, providing a deeper understanding of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.