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On Friday, Citi analysts downgraded Orsted A/S (CSE:ORSTED:DC) (OTC: DNNGY (OTC:DNNGY)) from Neutral to Sell, significantly reducing the price target to DKK211.00 from the previous DKK300.00. The stock, which has declined nearly 31% over the past six months and trades near its 52-week low, faces mounting pressure as the downgrade reflects Citi’s concerns over the company’s balance sheet and funding strategy for its projects in the United States. InvestingPro data shows the company is quickly burning through cash, with a negative free cash flow yield of 23%.
Citi’s analysts highlighted that Orsted has been selling operating cash flows to fund its U.S. endeavors and has also canceled projects that could have created value, such as Hornsea 4. The analysts underscored the risks associated with the company’s U.S. projects, which include potential delays, capital expenditure overruns, and the impact of tariffs. They also pointed out the possibility of a cease-to-develop order similar to that which affected the Empire Wind project. With a market capitalization of $16.05 billion, the company’s financial health score on InvestingPro is rated as "Fair," suggesting moderate stability despite these challenges.
The analysts further noted that Orsted’s stock is trading above its price-to-book value (P/BV) at 1.27 times, which is higher than the 0.7 to 0.8 times average of its peers in the renewable energy sector. Given the uncertain outlook in the U.S. and the heightened risk premium, Citi believes that there are downside risks to their target price, now set at DKK211 per share. According to InvestingPro’s Fair Value analysis, the stock appears overvalued at current levels, with 8 additional ProTips available to subscribers for deeper insights into the company’s financial health and market position.
The removal of the Hornsea 4 project from their valuation and the potential for additional tariff-related capital expenditures on U.S. projects under construction were cited as additional factors contributing to the reduced price target. Citi’s analysts concluded that with limited visibility on balance sheet support and comfort regarding the U.S. outlook, the stock’s premium valuation is not justified, leading to the downgrade to Sell.
In other recent news, Orsted A/S has seen a shift in analyst ratings from two prominent firms. Bernstein downgraded Orsted’s stock rating from Outperform to Market Perform, maintaining a price target of DKK 395.00. This adjustment comes after a 14% increase in Orsted’s stock price following the announcement of a reduced capital program. Bernstein cited concerns over the company’s operational and political challenges in the U.S. offshore wind sector as reasons for a more cautious stance. Additionally, BofA Securities downgraded Orsted from Buy to Neutral, slashing the price target from DKK 410.00 to DKK 350.00. BofA’s decision is based on Orsted’s strategic focus on completing ongoing projects and improving its capital structure, which is expected to result in lower earnings and dividends. BofA also noted that Orsted’s current phase aims to maintain its investment-grade credit rating, crucial for future financing. Both firms’ analyses reflect a reassessment of Orsted’s valuation and risk/reward balance in light of recent developments.
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