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On Friday, Citi analyst Jenny Ping revised the price target on Orsted A/S (CSE:ORSTED:DC) (OTC: DNNGY (OTC:DNNGY)) shares, reducing it significantly from DKK428.00 to DKK300.00, while maintaining a Neutral rating on the stock. The stock, currently trading at $12.05, has fallen 36.96% over the past six months and is hovering near its 52-week low. The adjustment follows concerns regarding the company's financial health and the potential impact of its strategic decisions on its balance sheet. InvestingPro data reveals the company's challenging position with a negative free cash flow yield of -23%.
Ping's analysis indicates that Orsted is at a crossroads, facing a difficult decision between selling more of its flagship operating assets or raising equity to address its balance sheet woes. With a market capitalization of $15.36 billion and total debt of $15.35 billion, the sale of assets would result in the loss of earnings and cash flow, while an equity raise comes with its own set of challenges given the current market conditions for renewable energy investments, which are characterized by high rates and political risk. For deeper insights into Orsted's financial position, InvestingPro subscribers have access to over 14 additional key metrics and expert analysis.
The analyst's review takes into account Orsted's already announced asset disposals and projects a continued funding shortfall. Despite the consideration of a 50% sale of projects such as Hornsea 3 & 4 and Changhua 2a&b, a funding gap of around DKK30 billion is still anticipated. Ping expressed concern that further sales of operating assets, although potentially narrowing the financial gap, could lead to Orsted becoming a renewable company owning increasingly fewer assets.
The possibility of additional equity requirements is growing, according to Ping's assessment. This is compounded by the risk of further potential impairments related to the Inflation Reduction Act and interest rates. The analyst concluded that the potential for valuation upside is overshadowed by these financial and operational risks, making it challenging to support a more favorable stock rating for Orsted.
In other recent news, Danish renewable energy company, Orsted, reported a 22% year-over-year increase in EBITDA for the first nine months of 2024, reaching DKK 23.6 billion. This development comes despite facing impairments in its U.S. offshore projects. The company also commissioned 550 megawatts of renewable capacity, increasing its total portfolio to 18.2 gigawatts. In a strategic move, Orsted divested a 12.45% stake in four UK offshore assets to Brookfield for DKK 15.7 billion. On the analyst front, both Morgan Stanley (NYSE:MS) and Goldman Sachs downgraded Orsted's stock from Overweight and Buy to Equalweight and Neutral, respectively. The downgrades were attributed to various factors that could potentially impact the company's financial performance and operations. These are some of the recent developments surrounding Orsted.
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