How are energy investors positioned?
On Wednesday, Citi analysts downgraded Fortum OYJ (HE:FORTUM:FH) (OTC: FOJCY), a $15.16 billion market cap utility company, from Neutral to Sell, adjusting the price target from EUR14.30 to EUR13.00. The downgrade follows a notable year-to-date increase of 28.93% in Fortum’s share price, which Citi attributes to positive first-quarter results in 2025 and a special dividend of EUR1.4 per share. According to InvestingPro analysis, the stock appears overvalued at current levels.
The analysts at Citi express concern that the recent performance of Fortum’s stock is not in line with the company’s fundamental value. They point to Nordic power prices that continue to linger below EUR40 per megawatt-hour (MWh) and Finnish yields that have risen above 3%. These market conditions, according to the analysts, do not support the current advancement in Fortum’s stock price, despite the company’s strong financial health score of 3.08 out of 4 on InvestingPro’s metrics.
Citi also forecasts downside risks to the consensus estimates for Fortum’s 2025 performance. They anticipate potential declines in the low to middle single percentage range due to lower volumes and, over the medium term, due to lower realized power prices. The analysts underscore that such risks could impact the company’s financial outlook.
In addition to the concerns over power prices and volumes, Citi’s analysts highlight Fortum’s debt situation. They project that the company’s net debt will stand at approximately EUR1.1 billion at the end of 2025, which translates to a net debt to EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio of 0.8x. This level of indebtedness, they suggest, could decrease the likelihood of Fortum issuing another special dividend in the near future.
Furthermore, the analysts believe that the potential for a short-term increase in power prices is relatively limited, which could constrain Fortum’s ability to enhance shareholder value in the near term through price-driven growth. The adjustment in the stock’s price target to EUR13.00 reflects these concerns and the analysts’ revised expectations for the company’s financial performance. However, it’s worth noting that Fortum has maintained dividend payments for 27 consecutive years, with a current dividend yield of 4.3%. InvestingPro subscribers can access 8 additional key insights about Fortum’s financial health and growth prospects.
In other recent news, Fortum OYJ has seen adjustments in its stock ratings and price targets by major financial firms. Morgan Stanley (NYSE:MS) downgraded Fortum’s stock from Overweight to Equalweight, setting a new price target at €15.60. This decision comes after a 12% rally in the company’s share price this year, which Morgan Stanley believes now reflects Fortum’s fundamentals. The firm also noted that Fortum’s dividend yield is competitive but not significantly higher than the sector average. Meanwhile, Citi has slightly increased its price target for Fortum to EUR14.30, maintaining a Neutral rating. Citi’s analysts anticipate a decline in Fortum’s results over the next three years due to current forward power prices, although they acknowledge the potential for rising long-term power prices. Both firms highlight the importance of power prices in Fortum’s financial performance, with any significant changes likely to impact the company’s valuation. Investors are advised to monitor these developments closely as they navigate the evolving energy market landscape.
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