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On Monday, Citi Research revised its stance on GEA Group AG (G1A:GR) (OTC:GEAGY), downgrading the company’s stock rating from Buy to Neutral. The firm also adjusted its price target for the stock to EUR59.00, a decrease from the previous EUR50.80 target.
Citi’s analysts pointed to the end of certain favorable conditions that have recently supported GEA Group’s gross margin improvement. They noted that while GEA Group’s management has effectively enhanced the company’s profitability since 2019, resulting in an estimated 16% EBITDA in 2025, the current gross margin gains are largely due to a favorable mix of higher-margin service sales over new machine sales. This mix is expected to shift in the second half of the year as the company works through its increased backlog, which saw a significant improvement in the fourth quarter of 2024.
The analysts further explained that the substantial rise in service sales, which typically carry higher margins than new machine sales, coincided with a notable step-up in gross margin. However, they believe this trend is unlikely to sustain as the backlog deliveries commence. Additionally, investments in Enterprise Resource Planning (ERP) could potentially impact the company’s margins in the latter half of the year.
Despite the downgrade, Citi’s analysts still recognize the long-term margin story for GEA Group as favorable. The company’s stock had outperformed by 40% over the last twelve months, but Citi now views the risk/reward balance as more even, prompting the change in their recommendation. The adjustment in the stock rating and price target reflects a cautious outlook for the company’s performance in the near future, given the expected changes in sales mix and investment impacts.
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